AAFM CWM_LEVEL_2 Exam - 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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William

9 months ago

Yup, he definitely profits if it stays below 2600!

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Sharee

9 months ago

Totally agree, that’s a big loss!

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Deangelo

9 months ago

Wait, how can he lose that much? Sounds off.

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Shayne

9 months ago

If it closes at 2400, he keeps the full premium, right?

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Bernadine

10 months ago

If Nifty closes at 2900, Mr. XYZ loses the premium plus more.

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Twana

10 months ago

I vaguely recall that the payoff is calculated based on the difference from the strike price. I hope I remember the right way to apply it here!

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Dexter

10 months ago

If Nifty closes at 2900, I think the loss would be significant since it's above the strike price. But for 2400, it seems like we keep the premium.

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Chantell

10 months ago

I feel a bit unsure about how to handle the payoff calculations. I practiced similar questions, but I might mix up the numbers.

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Shelia

11 months ago

I remember that if the Nifty closes above the strike price, the loss would be the difference minus the premium. So, I think I need to calculate that carefully.

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Karma

11 months ago

I'm feeling pretty confident about this one. Since Mr. XYZ is bearish, selling the call option is a smart strategy. As long as the Nifty stays below the strike price, he gets to keep the full premium, which is the net payoff.

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Jeniffer

11 months ago

I'm a bit confused on how to approach this. Do I need to consider the difference between the strike price and the Nifty closing price? Or is it just a matter of comparing the premium received to the potential loss?

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Cassie

11 months ago

Okay, let me think this through step-by-step. Mr. XYZ sold a call option, so if the Nifty stays below the strike price, he gets to keep the premium. I just need to calculate the payoff for the two given Nifty closing prices.

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Brynn

11 months ago

Hmm, this looks like a tricky options question. I'll need to carefully work through the payoff calculations to determine the net payoff in each scenario.

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Kati

1 year 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

1 year 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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Erinn

1 year ago

This is a classic bearish strategy. I bet Mr. XYZ is secretly hoping the Nifty tanks so he can keep that sweet premium. Option C seems to be the correct answer, though I might have to crunch the numbers again just to be sure.

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Sanda

1 year ago

Yeah, it's a risky move but could pay off well if the Nifty drops as expected.

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Bambi

1 year ago

I think Option C is the correct answer too, but let's double check the calculations just to be safe.

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Golda

1 year ago

I agree, Mr. XYZ is definitely banking on the Nifty falling below the strike price.

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Coletta

1 year ago

But if Nifty closes at 2400, the net payoff would be -46 and 4, right?

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Eric

1 year ago

I agree with Alecia, because the strike price is higher than the current Nifty value.

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Alecia

1 year ago

I think the net payoff would be -146 and -46 if Nifty closes at 2900.

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Luisa

1 year 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

1 year ago

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

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Karl

1 year 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 year ago

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

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Brittney

1 year 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

1 year 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

1 year ago

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

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Fredric

1 year ago

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

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