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

A trader writes one lot (lot size 50) of a Nifty put option with strike 22,000 at a premium of Rs 90. Ignoring costs, at what expiry index level does the writer break even?

The break-even level is 21,910. A put writer receives a premium of 90 points, which cushions losses until the index falls below the strike by that amount. So break-even equals the strike of 22,000 minus 90, regardless of lot size.

  1. A22,090
  2. B21,910Correct
  3. C22,000
  4. D21,820

Explanation

A put writer loses when the index falls below strike minus premium received. Break-even = 22,000 - 90 = 21,910. At 22,090 the writer would simply keep the full premium since the put is out of the money. Lot size does not affect the break-even level.

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