NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
Mr. Arjun Rao, a client of an investment adviser, sells (writes) one lot of a Nifty put option at strike 24,000 for a premium of Rs 120 per unit. Lot size is 50. At expiry Nifty settles at 23,700. Ignoring costs, what is his net profit or loss on the position?
Mr. Rao loses Rs 9,000. The put he sold has intrinsic value of 300 points at expiry, against the 120 points premium received, giving a net loss of 180 points per unit. Multiplied by the lot size of 50, the loss is Rs 9,000.
- ALoss of Rs 9,000
- BLoss of Rs 15,000
- CProfit of Rs 6,000
- DLoss of Rs 3,000Correct
Explanation
The put finishes with intrinsic value 24,000 - 23,700 = 300 per unit. Writer's net = premium received - intrinsic value = 120 - 300 = -180 per unit. Times 50 = -Rs 9,000. Rs 15,000 is the intrinsic loss alone, ignoring the premium received.
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