NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
Ms. Kavita Rao buys a Nifty call with strike 24,500 at a premium of Rs 150 and simultaneously buys a Nifty put with strike 24,500 at a premium of Rs 120 (same expiry). What are the break-even levels at expiry?
A long straddle costs Rs 270 in total premium, so the break-evens are the strike plus and minus 270, namely 24,770 and 24,230. The position profits only if Nifty moves beyond these levels by expiry.
- A24,230 and 24,770Correct
- B24,350 and 24,620
- C24,500 only
- D24,380 and 24,650
Explanation
This is a long straddle. Total premium = 150 + 120 = Rs 270. Upper break-even = 24,500 + 270 = 24,770; lower = 24,500 - 270 = 24,230. Check: at 24,770 the call pays 270 and the put pays 0, giving zero net. Using only one premium each gives wrong levels.
Did you get it right without looking?
One question tells you little. A timed set on Understanding Derivatives shows your real accuracy, how long you take and where you lose marks.
More Understanding Derivatives questions
- In a standard exchange-traded equity index futures contract in India, which party is exposed to the clearing corporation rather than directl…
- In an exchange-traded equity futures contract, the daily settlement of gains and losses between the buyer and seller through the clearing co…
- Ms. Kavita Menon owns 1,000 shares of a company bought at Rs 800, now trading at Rs 900. She sells one-lot (1,000 shares) 940-strike call op…
- In the Indian exchange-traded derivatives market, an equity index futures contract is settled at expiry in which manner?
- Mr. Rao holds 1,000 shares of an Indian company priced at Rs 500 each. He buys 10 lots of put options (lot size 100) on the stock with strik…
- Ms. Anita Rao holds 1,000 shares of an Indian company bought at Rs 500 each. The shares now trade at Rs 600 and she fears a fall in the near…