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

A trader buys a 2,000 strike Nifty call at Rs 90 and a 2,000 strike Nifty put at Rs 70 (same expiry, lot size 50). What is the maximum loss and the upper breakeven of this position?

Maximum loss is Rs 8,000 and the upper breakeven is 2,160. The position is a long straddle costing 160 index points in total premium; the loss is capped at 160 times 50, and the upper breakeven is strike plus combined premium.

  1. AMaximum loss Rs 8,000; upper breakeven 2,160Correct
  2. BMaximum loss Rs 8,000; upper breakeven 2,090
  3. CMaximum loss Rs 4,500; upper breakeven 2,160
  4. DUnlimited loss; upper breakeven 2,160

Explanation

This is a long straddle. Total premium = 90 + 70 = 160 points. Maximum loss = 160 x 50 = Rs 8,000 (when the index settles at 2,000). Upper breakeven = 2,000 + 160 = 2,160 and lower is 1,840. Using only the call premium gives 2,090, which is wrong.

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