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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options

An investor writes one lot of 250 shares of a put option with strike Rs 1,200 and receives a premium of Rs 30 per share. At expiry the stock closes at Rs 1,150. What is the net result for the writer, ignoring costs?

The writer makes a loss of Rs 5,000. The put pays out Rs 50 per share (1,200 minus 1,150) but the writer collected only Rs 30 premium, so the net loss is Rs 20 per share. Across 250 shares, this is Rs 5,000.

  1. ALoss of Rs 5,000Correct
  2. BProfit of Rs 7,500
  3. CLoss of Rs 12,500
  4. DProfit of Rs 5,000

Explanation

The put is exercised against the writer: payout = 1,200 - 1,150 = Rs 50 per share. Net = 30 received - 50 paid = -Rs 20 per share. For 250 shares, loss = Rs 5,000. Profit of Rs 7,500 is just the premium kept, ignoring the payout, while Rs 12,500 ignores the premium received.

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