Question

The market price of a security is the same as the exercise price. If it stays that way, which TWO of the following investors would have a profit?

I. The writer of an at-the-money straddle

II. The writer of an at-the-money call

III. The purchaser of an at-the-money put

IV. The purchaser of an at-the-money call

		I and II
		III and IV
		II and IV
		I and III

Answer 1

Correct answer: I and II

When market price of stock and strike price option equal at maturity then purchaser of at the money call and put both would have zero payoff and loss is premium paid for options.

On the other hand, writer of call and put would maket profit equals to premium received when maket price and strike price remain equal on maturity date.

Straddle is an option strategy which includes buying a call and put at same strike price and expiry date. Thus, a staddle writer make profit when stock price and strike price remain equal on maturity.