NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
An investor holds shares bought at Rs 800 and buys a put with strike Rs 780 for a premium of Rs 25 (protective put), per share. At expiry the share price is Rs 700. What is the net result per share on the combined position, ignoring costs other than premium?
The net loss is Rs 45 per share. The stock lost Rs 100, the put gained Rs 80 as it is worth 780 minus 700, and the premium cost Rs 25. Combined, the loss equals the 20 gap between cost and strike plus the 25 premium, which is the maximum loss.
- ALoss of Rs 100
- BLoss of Rs 125
- CLoss of Rs 45Correct
- DLoss of Rs 20
Explanation
Stock loss = 700 - 800 = -100. Put payoff = 780 - 700 = +80. Premium paid = -25. Net = -100 + 80 - 25 = -45. Maximum loss is (800 - 780) + 25 = 45, confirming the result. Rs 125 ignores the put payoff, and Rs 20 ignores the premium.
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