Question

Using the options below, at what price range would the investor lead to a positive profit when STRADDLE is created?

• call option with K = $60, where its call option price = $1.00
• put option with K = $60, where its put option price = $7.00

		when stock price is between $52 and $68
		when stock price is below $52 and/or above $68
		when stock price is below $55 and/or above $65
		when stock price is between $55 and $65

Answer 1

Straddle is a strategy where trader expect huge movement from the strike price. In this case the cost of both options is $8 thus to make profit stock price should either rise or fall by $8. thus the correct answer is option B when the stock price is below $52 and/or above $68.