You establish a straddle on Walmart using September call and put options with a

Question

You 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.

What is the most you can lose on this position? (Input the amount as positive value. Round your answer to 2 decimal places.)

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.)

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.)

You 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.

Explanation / Answer

1. Maximum loss in this case is the total of Call premium and Put premium i.e $5.20 + $5.95 = $11.15

2. When stock is selling at $ 79 and the strike price is $69 and the call premium is $5.20 and Put premium is $5.95; then loss will be $1.15; (ie. Selling price 79-Strike price $69 - Call premium $5.20 - put premium $5.95)

3. There are two break even stock prices i.e one at call option side and another at put option side: these are as follows:

    Break even stock price on call option side: Strike price + call option premium = $69 + $5.20 = $74.20

    Break even price on put option side = Strike price - Put option premium = $69 - $5.95 = $63.05

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