Question

Please Answer C: You establish a straddle on Walmart using the September call and put options with a strike price of $51. The call premium is $4.30 and the put premium is $5.05.

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

Maximum loss $ 9.35

b. What will be your profit or loss if Walmart is selling for $56 in September? (Input the amount as positive value. Round your answer to 2 decimal places.)

Loss of $4.35

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 $_____

Answer 1

In straddle , there will be two breakeven points. The upper breakeven point will be at the value of the call option where it is equal to the intial value to purchase both the options. The lower breakeven point will be at the value odf the put option where it is eaual to the initial value to purchase both the options.

So, here upper breakeven point will be at 51+(4.3+5.05)= $60.35.

Lower breakeven point will be at 51-(4.3+5.05)= 41.65.

So breakeven prices are $60.35 and $41.65.