A strangle involves the purchase of a put option at a low exercise price and the simultaneous purchase of a call option on the same stock at a higher exercise price but with the same expiration date. Suppose that you can purchase a put contract on a stock at a strike price of $95 for $1.85 and a call contract with a strike price of $105 for $3.20. The stock is currently trading at $101. What is you profit if the stock price at exercise is $90?
$100?
$110?
At what stock prices do you break even?
Why would you want to use a straddle?

Question

A strangle involves the purchase of a put option at a low exercise price and the simultaneous purchase of a call option on the same stock at a higher exercise price but with the same expiration date. Suppose that you can purchase a put contract on a stock at a strike price of $95 for $1.85 and a call contract with a strike price of $105 for $3.20. The stock is currently trading at $101. What is you profit if the stock price at exercise is $90?
 $100?
 $110?
 At what stock prices do you break even?
 Why would you want to use a straddle?

Quizplus · Accepted Answer

The Answer of A strangle involves the purchase of a put option at a low exercise price and the simultaneous purchase of a call option on the same stock at a higher exercise price but with the same expiration date. Suppose that you can purchase a put contract on a stock at a strike price of $95 for $1.85 and a call contract with a strike price of $105 for $3.20. The stock is currently trading at $101. What is you profit if the stock price at exercise is $90?
 $100?
 $110?
 At what stock prices do you break even?
 Why would you want to use a straddle?

A Strangle Involves the Purchase of a Put Option at a Low