USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock.

-Refer to Exhibit 16.7. Calculate the payoff of a long straddle at an expiration stock price of $20.
A) -$4.50
B) -$2.00
C) $2.00
D) $4.50
E) $20.50

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock.
 
-Refer to Exhibit 16.7. Calculate the payoff of a long straddle at an expiration stock price of $20.
A) -$4.50 
B) -$2.00 
C) $2.00 
D) $4.50 
E) $20.50

Quizplus · Accepted Answer

The payoff of a long straddle is the maximum of the payoff of a long call and a long put. At an expiration stock price of $20, the payoff of the long call is $2.00 and the payoff of the long put is $2.00. Therefore, the payoff of the long straddle is $2.00.