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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

A trader buys a call option with strike Rs 500 at a premium of Rs 18 and simultaneously buys a put option on the same stock with the same strike and expiry at a premium of Rs 12. What is the upper breakeven price at expiry?

The upper breakeven is Rs 530. A long straddle costs Rs 30 in total premium (18 plus 12), and the stock must rise that much above the Rs 500 strike for the call gain to cover the combined premium paid.

  1. ARs 530Correct
  2. BRs 512
  3. CRs 470
  4. DRs 488

Explanation

This is a long straddle. Total premium paid = 18 + 12 = Rs 30. Upper breakeven = 500 + 30 = Rs 530; lower breakeven = 500 - 30 = Rs 470. Rs 512 uses only the put premium, and Rs 488 is the lower breakeven using only the put premium.

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