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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

An investor buys a Nifty call at strike 22,000 for a premium of Rs 150 and buys a Nifty put at the same strike and expiry for a premium of Rs 120. What are the breakeven levels of this long straddle at expiry?

The breakevens are 21,730 and 22,270. The straddle costs a combined premium of Rs 270, so the index must move at least 270 points above or below the 22,000 strike at expiry for the position to start making a profit.

  1. A21,730 and 22,270Correct
  2. B21,850 and 22,150
  3. C21,880 and 22,120
  4. D22,000 only

Explanation

Total premium paid = 150 + 120 = 270. Upper breakeven = 22,000 + 270 = 22,270 and lower breakeven = 22,000 - 270 = 21,730. Using only the call premium or put premium alone would give wrong breakevens such as 21,850 or 22,150.

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