CMA Final · Strategic Financial Management · Options
An investor writes a call option on a share with strike ₹250 and receives a premium of ₹12. At expiry the share price is ₹270. What is the writer's net profit or loss per share?
The writer suffers a net loss of ₹8 per share. The call is exercised, costing the writer ₹20 (270 minus 250), while the premium received of ₹12 offsets part of it, leaving minus ₹8.
- ALoss of ₹8Correct
- BProfit of ₹12
- CLoss of ₹20
- DProfit of ₹8
Explanation
The buyer exercises and the writer pays 270 - 250 = ₹20. The writer received ₹12 as premium, so net = 12 - 20 = -₹8. Loss of ₹20 ignores the premium received.
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