NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A trader buys one call with strike 500 at a premium of Rs 18 and also buys one put with the same strike and expiry at a premium of Rs 12 on a stock. What are the breakeven prices at expiry?
The breakevens are Rs 470 and Rs 530. A long straddle costs the combined premium of Rs 30, so the stock must move that much above or below the Rs 500 strike at expiry for the position to recover its cost.
- ARs 470 and Rs 530Correct
- BRs 482 and Rs 512
- CRs 488 and Rs 518
- DRs 500 only
Explanation
This is a long straddle with total premium 18 + 12 = 30. Upper breakeven = 500 + 30 = 530 and lower breakeven = 500 - 30 = 470. Using only one premium gives incorrect values like 482/512 or 488/518.
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