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

A trader buys a Nifty 22,000 put at Rs 120 and a Nifty 22,000 call at Rs 100 (same expiry), forming a long straddle. Ignoring costs, at which expiry Nifty levels does the strategy break even?

The break-even levels are 21,780 and 22,220. The straddle costs a total premium of Rs 220, so the index must move 220 points above or below the 22,000 strike at expiry for the payoff to cover the cost.

  1. A21,780 and 22,220Correct
  2. B21,880 and 22,120
  3. C21,900 and 22,100
  4. D22,000 only

Explanation

Total premium = 120 + 100 = Rs 220. Upper break-even = 22,000 + 220 = 22,220; lower = 22,000 - 220 = 21,780. Check: at 22,220 call pays 220 and put 0, net zero. Using only one premium gives wrong levels.

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