Question

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**.

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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