Question

the current stock price of Alcoa is $68 and the stock does not pay dividend

10 points Save As The current stock price of Alcoa is Sea and the stock does not pay dividends. You think in the near future there will be a dramatic movement in stock price depends on the rest of a fost for new drug. However the direction of the price movement is not clear, so you decide to establish a stradde strategy using at the money options with 1 month to expiration to take advantage of it. Both put and call at the money options have a premium of $5. 1 Month later, the test is postponed, as a result the stock price drops to $65. What is your profit or loss using your strategy A 1000 loss B. 700 profit OC. 300 profit OD 1000 profit DE 300 loss OF 700 loss

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

u 21 e Paw B D x 0555 H ENG 16 01 2020 21 -N345 x v for H FG F FL FJ FK FL F M FN FOFPFQ FR FS- 345 346 AT THE MONEY OPTION, IMPLIES STOCK PRICE = STRIKE PRICE 347 348 349 68 IN CASE OF STRADDLE STRIKE PRICE = PREMIUM PAID IN CASE OF CALL OPTION = PREMIUM PAID IN CASE OF PUT OPTION = TOTAL PREMIUM PAID = 500 (100 SHARES X 5] 500 (100 SHARES X 5] 1000 NOW PRICE AFTER A MONTH = 65 350 351 352 353 354 355 356 357 358 359 360 361 362 CALL WILL NOT BE EXERCISED AS PRICE = 65 <STRIKE PRICE = 68 PAYOFF ON CALL OPTION = 0 PUT WILL BE EXERCISED AS PRICE = 65 <STRIKE PRICE = 68 PAYOFF ON PUT OPTION = STRIKE PRICE - PRICE AFTER A MONTH PAYOFF ON PUT OPTION = 68-65 =3 X 100 = 300 TOTAL PAYOFF = 0 + 300 = 300 NET PROFIT = PAYOFF - PREMIUM PAID ANS:F: NET PROFIT = 300 - 1000 = -700 364 365 366 367 368 369 370 ... OCT CASH FLOW STATW RCF ARM, MSI,conlidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET | GM HPR AM TAX GROWTH SUST | PREF AND DIV POLICY..