Question

1. Stock price is $150. You see an at-the-money call option trading at $15, and at-the-money put trading at $5. The options have the same expiration date. You decide to buy a straddle. What will be the breakeven points of the strategy, i.e., at what stock prices will your profit will be exactly zero?

   		Two breakeven points, S* = 145 and S* = 165
   		Two breakeven points, S* = 135 and S* = 155
   		One breakeven point, S* = 150
   		Two breakeven points, S* = 130 and S* = 170

Answer 1

The Correct answer is Option A

The Break Even is the point of the Zero Profit and Zero Loss, and in this case the premium paid is the Price paid to gain the right.

Call Option is the Right to buy the asset which means option holder expects the share price to go up and vice versa for put option.

For Call Option Break even Stock price = Share Price + premium paid

= 150 + 15

= 165

For Put Option Break even stock price = Share Price - Premium paid

= 150 - 5

= 145

So, The Option A is correct