CMA Final · Strategic Financial Management · Options
An investor holds 1,000 shares of Tapti Pharma at ₹800 and buys 1,000 protective puts with strike ₹760 at a premium of ₹18 each. At expiry the share price is ₹700. What is the investor's net result on the combined position compared with the initial share value of ₹800 per share?
The net loss is ₹58,000. Each share falls ₹100, the put pays ₹60 (760 less 700), and the ₹18 premium is an extra cost, so net loss is 100 - 60 + 18 = ₹58 per share, or ₹58,000 on 1,000 shares.
- ALoss of ₹58,000Correct
- BLoss of ₹40,000
- CLoss of ₹100,000
- DLoss of ₹82,000
Explanation
Share loss = 800 - 700 = 100 per share. Put payoff = 760 - 700 = 60. Premium = 18. Net loss per share = 100 - 60 + 18 = 58, so for 1,000 shares ₹58,000. Ignoring the premium gives ₹40,000.
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