Question

Compute the upper and lower breakeven point for a strangle. The exercise price on call option is $1.72 and the exercise price on put option is $1.55. The premium on put option is $0.014 and premium on call option is $0.01. a. $1.526 and -$1.744 b. $1.744 and $1.526 c. $1.734 and $1.526 d. $1.744 and $1.574

Answer 1

Ans) b. $1.744 and $1.526

Total premium paid = Premium paid on call option + premium paid on put option

=$0.014 + $0.01

=$0.024

Thus upper breakeven point for strangle = Exercise price of call option + Total premium paid

= $1.72 + $0.024

= 1.744 $

Lower breakeven point for strangle = Exercise price of put option - Total premium paid

= $1.55 - $0.024

= $1.526