Question

You form a long straddle by buying a call with a premium of C = $6, and buying a put with a premium of P = $5. Both options have an exercise price of X = $30, both mature in 2 months, and both have the same underlying asset. Find the profit of this straddle when the price of the underlying asset is S = $35

Answer 1

Long put and call options. straddle means buying a Buying call = ct Buying put = pt Total premium paid to the options sellen = = 6+5 $11. Exercise Price (X) = 30 Call option x=30 stock price = 35 = 35 - 30 = 5 Put option x=30 Stock price = 35 Payoff = 0 greater because stock I than exercise price is price] Total payoff = 5 to = $ 5 Total Total paid. Profit= payoff - premium 5- = -6 . Profit - - $6 Answer.