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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives

An investor buys a call option on a stock at a strike price of Rs 500 by paying a premium of Rs 20 per share. What is the investor's breakeven price at expiry, ignoring transaction costs?

The breakeven for a call buyer is the strike price plus the premium paid, which is Rs 520. At that expiry price the intrinsic value of Rs 20 exactly offsets the premium, giving zero profit or loss.

  1. ARs 480
  2. BRs 520Correct
  3. CRs 500
  4. DRs 540

Explanation

A call buyer needs the spot price to exceed the strike by the premium paid to recover the cost. Breakeven = 500 + 20 = Rs 520. Rs 480 wrongly subtracts the premium, which applies to a put-style calculation.

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