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

Ravi buys one lot of a stock put option with strike Rs 500 at a premium of Rs 20. The lot size is 1,000. At expiry the stock settles at Rs 460. What is Ravi's net profit?

Ravi earns a net profit of Rs 20,000. The put pays 500 minus 460, which is Rs 40 per share. After deducting the Rs 20 premium, the net gain is Rs 20 per share, and across 1,000 shares this is Rs 20,000.

  1. ARs 20,000Correct
  2. BRs 40,000
  3. CRs 60,000
  4. DRs 20,000 loss

Explanation

Put payoff = 500 - 460 = Rs 40 per share. Net = 40 - 20 premium = Rs 20 per share. Times 1,000 = Rs 20,000. Rs 40,000 ignores the premium paid.

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