NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
An investor sells a put option on a stock with a strike of Rs 500 and receives a premium of Rs 18. The lot size is 1,000 shares. What is the maximum possible loss on this position, assuming the stock price cannot fall below zero?
The maximum loss is Rs 4,82,000. If the stock falls to zero, the put seller must buy at Rs 500, so the loss is Rs 500 per share less the Rs 18 premium received, or Rs 482, which for 1,000 shares equals Rs 4,82,000.
- ARs 18,000
- BRs 5,00,000
- CRs 4,82,000Correct
- DUnlimited
Explanation
The put seller's loss is greatest when the stock falls to zero. Loss per share is strike minus price minus premium: 500 - 0 - 18 = Rs 482. Multiplied by 1,000 shares this is Rs 4,82,000. Rs 5,00,000 ignores the premium received, and Rs 18,000 is only the maximum profit.
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