An investor buys a call at a price of $6.10 with an exercise price of $56. At wh

Question

An investor buys a call at a price of $6.10 with an exercise price of $56. At what stock price will the 11. investor break even on the purchase of the call? (Round your answer to 2 decimal places.) Break even price $ 1 5 You establish a straddle on Walmart using September call and put options with a strike price of $50. The call premium is $4.25 and the put premium is $5. a. What is the most you can lose on this position? (Input the amount as positive value. Round your answer to 2 decimal places.) Maximum loss $ b. What will be your profit or loss if Walmart is selling for $58 in September? (Input the amount as positive value. Round your answer to 2 decimal places.) $ c. At what stock prices will you break even on the straddle? (Input your answers from highest to lowest to receive credit for your answers. Round your answers to 2 decimal places.) Break even prices $ and $

Explanation / Answer

11 call 6.1 strike 56 At a price strike + premium it will breakeven i.e 56+6.1 62.1 15 a The long straddle is designed around the purchase of a put and a call at the exact same strike price and expiration date. The long straddle is meant to take advantage of the market price change by exploiting increased volatility Most we can loose is call premium + put premium i.e.4.25+5 9.25 b If its selling at 58,call option will be executed and th payoff will be 8 from call option final PL will be payoff - premium,so 8-9.25 -1.25 c Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid Call price is 59.25 as 9.25 is premium combining call +put put it is 40.75

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