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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 12 and simultaneously buys a put option on the same stock with the same strike and expiry at a premium of Rs 8 (long straddle). What is the breakeven range at expiry?

The breakevens are Rs 480 and Rs 520. The straddle costs a combined premium of Rs 20, so the stock must move more than Rs 20 above or below the Rs 500 strike at expiry for the position to profit.

  1. ARs 480 and Rs 520Correct
  2. BRs 488 and Rs 512
  3. CRs 492 and Rs 508
  4. DRs 500 and Rs 520

Explanation

Total premium paid = 12 + 8 = Rs 20. Upper breakeven = 500 + 20 = 520 and lower breakeven = 500 - 20 = 480. Using only the call premium (488/512) ignores the put premium.

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