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

An investor buys one Nifty call option (strike 22,000) at a premium of Rs 150 and simultaneously buys one Nifty put option (strike 22,000) at a premium of Rs 120, same expiry. What are the upper and lower break-even levels at expiry?

The break-evens are 22,270 and 21,730. In a long straddle the combined premium of Rs 270 is added to and subtracted from the common strike of 22,000 to find the points where the position neither gains nor loses.

  1. A22,270 and 21,730Correct
  2. B22,150 and 21,880
  3. C22,270 and 21,880
  4. D22,120 and 21,850

Explanation

This is a long straddle. Total premium paid = 150 + 120 = 270. Upper break-even = 22,000 + 270 = 22,270; lower break-even = 22,000 - 270 = 21,730. Using only one premium for each side gives the wrong levels in the other options.

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