NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
An investor buys a call option on a stock with strike Rs 800 at a premium of Rs 30. Ignoring costs, what is the breakeven price at expiry for the call buyer?
The breakeven is Rs 830, being the strike of Rs 800 plus the premium of Rs 30. Only above this price at expiry does the call buyer's payoff exceed the premium paid.
- ARs 770
- BRs 800
- CRs 830Correct
- DRs 860
Explanation
A call buyer needs the spot price to exceed the strike by the premium paid to recover cost. Breakeven = 800 + 30 = Rs 830. Rs 770 wrongly subtracts the premium, which applies to a put buyer's breakeven formula in reverse.
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