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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives

Mr. Rahul Mehta holds 1,000 shares of an Indian company bought at Rs 500 each, now trading at Rs 520. He buys one lot of 1,000 put options with strike Rs 510 at a premium of Rs 8 per share. If the share price at expiry is Rs 480, what is his net position value per share after considering the share's current price and the put payoff, measured from the current price of Rs 520 and including the premium?

The net result is a loss of Rs 18 per share. The share loses Rs 40 in value, the put pays Rs 30 (510 minus 480), and the premium costs Rs 8, so the combined position is down by Rs 18 compared with the current price of Rs 520.

  1. ALoss of Rs 10 per shareCorrect
  2. BLoss of Rs 18 per share
  3. CLoss of Rs 40 per share
  4. DLoss of Rs 8 per share

Explanation

Share falls from 520 to 480, a loss of 40. Put payoff = 510 - 480 = 30. Premium paid = 8. Net = -40 + 30 - 8 = -18. Rechecking: protected floor is 510 minus premium 8 = 502 versus 520, giving a loss of 18. So the correct answer is a loss of Rs 18.

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