NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
Ms. Anita Rao holds 1,000 shares of an Indian company bought at Rs 500 each. The shares now trade at Rs 600 and she fears a fall in the near term but does not want to sell. She buys 1,000 put options (one lot equivalent) with a strike of Rs 600 for a premium of Rs 20 per share. At expiry the share price is Rs 520. What is her net position value per share ignoring other costs, counting the share value, put payoff and premium paid?
Her net value is Rs 580 per share. The share is worth Rs 520, the Rs 600 strike put pays Rs 80, giving Rs 600, and subtracting the Rs 20 premium paid leaves Rs 580. This is a protective put outcome.
- ARs 600
- BRs 580Correct
- CRs 520
- DRs 500
Explanation
Share is worth Rs 520. The put pays 600 - 520 = Rs 80. Total is 600. Subtract premium of Rs 20, giving Rs 580. Rs 600 ignores the premium; Rs 520 ignores the put payoff.
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