AAFM Exam CWM_LEVEL_2 Topic 1 Question 100 Discussion

Actual exam question for AAFM's CWM_LEVEL_2 exam

Question #: 100
Topic #: 1

Section C (4 Mark)

Mr. XYZ is bearish about Nifty and expects it to fall. He sells a Call option with a strike price of Rs. 2600 at a premium of Rs. 154, when the current Nifty is at 2694. If the Nifty stays at 2600 or below, the Call option will not be exercised by the buyer of the Call and Mr. XYZ can retain the entire premium of Rs.154.

What would be the Net Payoff of the Strategy?

* If Nifty closes at 2900

* If Nifty closes at 2400

A-146 and -46

B202 and 154

C-146 and 154

D-46 and 4

Show Suggested Answer

Suggested Answer: C

by Heike at Apr 09, 2025, 06:45 PM

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Kati

2 months ago

I hope Mr. XYZ has a good backup plan, because if the Nifty goes to 2900, he's going to be singing the blues. Option C seems like the right choice, but hey, maybe he's got a hidden talent as a fortune teller!

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Peggie

2 months ago

I wonder if Mr. XYZ has a crystal ball or something. I mean, how do you know the Nifty is going to fall? Anyway, the answer is clearly C. Let's hope he doesn't lose his shirt on this one!

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2 months ago

I'm pretty sure the answer is B. If the Nifty closes at 2900, the option will be exercised, and Mr. XYZ will have to pay the difference of 300 (2900 - 2600), which is 146. But if it closes at 2400, he keeps the entire premium of 154. Simple enough!

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Dewitt

21 days ago

Exactly, so the answer is B - 202 and 154.

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Karl

29 days ago

So the net payoff would be 202 if Nifty closes at 2900 and 154 if it closes at 2400.

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Daryl

1 months ago

Yeah, that's right. And he gets to keep the premium of 154 if Nifty closes at 2400.

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Brittney

2 months ago

I think the answer is B too. It makes sense that he would have to pay 146 if Nifty closes at 2900.

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Tori

2 months ago

Hmm, this seems straightforward. If the Nifty stays at 2600 or below, Mr. XYZ keeps the entire premium of Rs. 154. But if it goes up to 2900, he'll have to pay the difference, which is -146. Looks like option C is the way to go.

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Maurine

2 months ago

Yes, and if Nifty closes at 2400, the net payoff would be -46.

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Fredric

2 months ago

I agree, if Nifty closes at 2900, the net payoff would be -146.

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