A strategy consists of longing a put on the market index with a strike of 830 and shorting a call option on the market index with a strike price of 830.The put premium is $18.00 and the call premium is $44.00.Interest rates are 0.5% per month.What is the breakeven price of the market index for this strategy at expiration (in 6 months)?

Question

Quizplus · Accepted Answer

To calculate the breakeven price, we need to add the put strike price with the put premium and subtract the call premium from the result. Then, we multiply this result by e^(r*t), where r is the interest rate and t is the time to expiration.

Breakeven price = (Put strike + Put premium) - Call premium
= (830 + 18) - 44
= 804

Breakeven price adjusted for interest rates = 804 * e^(0.5% * 6/12)
= 855.21

Therefore, the breakeven price of the market index for this strategy at expiration is $855.21. The correct answer is C.

A Strategy Consists of Longing a Put on the Market