The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
Selling a straddle would generate total premium income of ________.
A) $300
B) $400
C) $500
D) $700

Question

Quizplus · Accepted Answer

Sell a straddle = sell a put + sell a call Premium income for selling a straddle = (P₀ + C₀)100 = ($3 + $4)(100) = $700

The Common Stock of the Avalon Corporation Has Been Trading