USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00.
-Refer to Exhibit 16.6. What would the net value of a long straddle position be if the stock price at expiration is $35?
A) -7.15
B) -$1.15
C) $1.15
D) $7.15
E) $36.15

Question

Quizplus · Accepted Answer

The net value of a long straddle position is the sum of the call and put option premiums. In this case, the call option premium is $1.95 and the put option premium is $2.90, so the net value of the long straddle position is $1.95 + $2.90 = $4.85. If the stock price at expiration is $35, then the call option will be in-the-money and the put option will be out-of-the-money. The call option will have a value of $35 - $29 = $6, and the put option will have a value of $0. Therefore, the net value of the long straddle position will be $6 - $0 = $6. The net profit from the long straddle position will be $6 - $4.85 = $1.15.