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CA Final · Advanced Financial Management · Derivatives Analysis and Valuation

Meera buys one call option on Infosys shares with a strike price of Rs 1,500 at a premium of Rs 60 per share. At expiry the share price is Rs 1,640. What is her net profit per share?

The net profit is Rs 80 per share. The call is exercised because the market price exceeds the strike, giving a gain of Rs 140, and the Rs 60 premium paid must be deducted from that gain to get the net result.

  1. ARs 140
  2. BRs 80Correct
  3. CRs 60
  4. DRs 200

Explanation

Intrinsic value at expiry = 1,640 - 1,500 = Rs 140. Net profit = 140 - premium 60 = Rs 80. Rs 140 ignores the premium paid; Rs 200 wrongly adds the premium instead of subtracting it.

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