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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives

An investor sells a put option with strike Rs 300 and receives a premium of Rs 8. If the stock expires at Rs 290, what is the seller's net profit or loss per share?

The put seller makes a net loss of Rs 2 per share. The buyer exercises, costing the seller Rs 10 (300 minus 290), which is partly offset by the Rs 8 premium received, leaving a Rs 2 loss.

  1. ALoss of Rs 2Correct
  2. BProfit of Rs 8
  3. CLoss of Rs 10
  4. DProfit of Rs 2

Explanation

The put is exercised against the seller with payoff loss = 300 - 290 = Rs 10. Net = premium 8 - 10 = loss of Rs 2. Profit of Rs 8 ignores exercise, and loss of Rs 10 ignores the premium received.

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