ou establish a straddle on Walmart using September call and put options with a s
ID: 2765480 • Letter: O
Question
ou establish a straddle on Walmart using September call and put options with a strike price of $69. The call premium is $5.20 and the put premium is $5.95. 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 $79 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
Straddle= 1 call and 1 put at same Strike price (E) = 69
The total premium paid is $ 5.2 + $ 5.95 = $ 11 .15
Answer a ) The most that a person can lose is the total premium paid on the options i.e $ 11 .15
Breakeven Stock Price = Call Option Strike Price + Premium Paid = 69 + 5.20 = $74.20
Breakeven Stock Price = Put Option Strike Price - Premium Paid = 69-5.95 = $63.05
Call Option Profit/Loss = Stock Price at Expiration - Breakeven Point = 79 - 74.20 = $4.8 Profit
Put Option Profit/Loss = Breakeven Point - Stock Price at Expiration = 63.05 - 79 = ($15.95) loss
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