NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options
A trader buys a Rs 1,200 strike put at a premium of Rs 30 and a Rs 1,200 strike call at a premium of Rs 40, same expiry (long straddle). What are the breakeven prices at expiry?
The breakevens are Rs 1,130 and Rs 1,270. The straddle costs a total premium of Rs 70, and the underlying must move that much above or below the common strike of Rs 1,200 for the position to recover its cost.
- ARs 1,170 and Rs 1,240
- BRs 1,160 and Rs 1,240
- CRs 1,130 and Rs 1,270Correct
- DRs 1,200 and Rs 1,270
Explanation
Total premium paid = 30 + 40 = Rs 70. Upper breakeven = 1,200 + 70 = 1,270. Lower breakeven = 1,200 - 70 = 1,130. Using only one premium on each side gives the wrong options.
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