USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 16.8. If you establish a long strip using the options with a 95 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
A) $256.25 loss
B) $256.25 gain
C) $925.00 loss
D) $668.75 gain
E) $668.75 loss

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 16.8. If you establish a long strip using the options with a 95 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
A) $256.25 loss 
B) $256.25 gain 
C) $925.00 loss 
D) $668.75 gain 
E) $668.75 loss

Quizplus · Accepted Answer

A long strip involves buying one call and two puts. If XYZ is trading at 101 11/16 (or 101.6875), the call option is in-the-money by 6.6875, and the puts are out-of-the-money. The gain from the call is 6.6875, but the cost of the options (premium) must be subtracted, resulting in a net loss of $256.25.