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 strap position be if the stock price at expiration is $35?
A) -$1.15
B) -$2.30
C) $1.15
D) $2.30
E) $5.20

Question

Quizplus · Accepted Answer

A long strap position involves buying two call options and one put option. At expiration, if the stock price is $35, the call options are in-the-money by $6 each (since $35 - $29 = $6), and the put option is out-of-the-money. The net value is calculated as: (2 * $6) - (2 * $1.95 + $2.90) = $12 - $6.80 = $5.20.