A call with a strike price of $60 costs $9. A put with the same strike...

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?

Expert Solution

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

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jeff jeffy answered 1 year ago

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