Skip to content

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

An investor buys a Rs 300 strike call at a premium of Rs 10 and buys a Rs 300 strike put at a premium of Rs 8 on the same stock and expiry. What are the upper and lower break-even prices at expiry?

The break-evens are Rs 318 and Rs 282. This long straddle costs a combined premium of Rs 18, so the stock must move that far above or below the Rs 300 strike for the buyer to recover the cost.

  1. ARs 318 and Rs 282Correct
  2. BRs 310 and Rs 292
  3. CRs 308 and Rs 290
  4. DRs 300 and Rs 282

Explanation

Total premium paid = 10 + 8 = Rs 18. Upper break-even = 300 + 18 = 318. Lower break-even = 300 - 18 = 282. Using only one premium each side gives the wrong values in other options.

Did you get it right without looking?

One question tells you little. A timed set on Strategies using Equity Futures and Equity Options shows your real accuracy, how long you take and where you lose marks.

Practise Strategies using Equity Futures and Equity OptionsFree diagnostic mock

More Strategies using Equity Futures and Equity Options questions