NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
An investor buys a call option on a stock at a strike of Rs 250 for a premium of Rs 12. What is the breakeven price at expiry for the buyer of this call?
A call buyer breaks even when the share price equals the strike price plus the premium paid. Here that is Rs 250 plus Rs 12, giving a breakeven of Rs 262 at expiry. Above this price the buyer makes a net profit.
- ARs 238
- BRs 250
- CRs 262Correct
- DRs 274
Explanation
The call buyer needs the share price to cover the strike plus the premium paid: 250 + 12 = Rs 262. Rs 238 wrongly subtracts the premium, Rs 250 ignores the premium, and Rs 274 doubles it.
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