Question

Buying a Straddle: Betty buys a straddle on Lehigh that has a strike price of $40.75....

Buying a Straddle: Betty buys a straddle on Lehigh that has a strike price of $40.75. The premium of the call is $1.20 and the premium of the put is $1.60. Calcuate the net profit or loss on buying the straddle if at the time of expiration the price per share of Lehigh is $83.20.

Homework Answers

Answer #1

In Straddle We buy one call option and one put Option

Strike Price = $ 40.75

Closing price = $ 83.20

We will exercise the Call option and will not exercise the Put Option

So Profit = Current Price - Strike Price - Call Premium - Put Premium

= 83.20 - 40.75 - 1.2 - 1.6

= $ 39.65  

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