In: Finance
A call with a strike price of $60 costs $9. A put with the same strike price and expiration date costs $3. Construct a table that shows the profit from a straddle. For what range of stock prices would the straddle lead to a loss?
Breakeven prices for long straddle = Strike - total premium and Strike + total premium
Total premium = 9 + 3 = 12
Breakeven prices = (60 - 12) and (60 + 12)
Breakeven prices = 48 and 72
For any prices between these two points, the long straddle would result in a loss.
Long call profit = max(St - X, 0) - call premium
Long put profit = max(X - St, 0) - put premium
Total profit = Long call profit + Long put profit
The table below shows the profit/loss of the straddle position.
Screenshot with formulas
Can I get a Thumbs UP, please? Thank You :-)