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

An investor buys one lot of a stock call option with strike Rs 500 at a premium of Rs 20 and simultaneously buys one put option on the same stock with strike Rs 500 at a premium of Rs 15 (same expiry). What are the breakeven prices at expiry per share?

The breakevens are Rs 465 and Rs 535. The long straddle costs a combined premium of Rs 35, so the stock must move Rs 35 above or below the Rs 500 strike at expiry for the position to recover its cost.

  1. ARs 465 and Rs 535Correct
  2. BRs 480 and Rs 515
  3. CRs 485 and Rs 520
  4. DRs 500 and Rs 535

Explanation

This is a long straddle with total premium Rs 35. Upper breakeven = 500 + 35 = 535; lower breakeven = 500 - 35 = 465. Option Rs 480/515 uses only one premium each, which is wrong.

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