In: Finance
Must use the following insituation to enter a Strip position
-Call Option 1 = Strike = $69.50, O-Price = $ 2.40
-Put Option 2 = Strike = $69.50, O-Price = $ 3.60
Which options are purchased and whichs ones are sold along with the breakeven point?
Solution:-
Strip position:-
In strip position we buy 1 in the money call option and buy 2 in the money put option. We do not sell anything in the strip position.
Hence we buy 1 call option at $2.40 and buy 2 put option at $3.60 each.
Hence the total premium paid = $2.40+2*$3.60 =$9.60
a)Upper Breakeven Point = Strike Price of Call/Puts + TotalPremium Paid
= $69.50+$9.60=$79.10
b) Lower Breakeven Point = Strike Price of Call/Puts - (Net Premium Paid/2)
=$69.50-$9.60/2
=$64.70
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