The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares)unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-Suppose a put is added to a straddle.This overall transaction is called a strip.Determine the profit at expiration on a strip if the stock price at expiration is $36.
A)-$129
B)$1,416
C)$429
D)$1,384
E)none of the above

Question

The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
  Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares)unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-Suppose a put is added to a straddle.This overall transaction is called a strip.Determine the profit at expiration on a strip if the stock price at expiration is $36.
A)-$129 
B)$1,416 
C)$429 
D)$1,384 
E)none of the above

Quizplus · Accepted Answer

The profit at expiration on a strip is the difference between the strike price and the stock price at expiration. In this case, the strike price is $35 and the stock price at expiration is $36, so the profit is $1. The strip consists of a put and a call, so the total profit is $1 x 2 = $2.

The Following Prices Are Available for Call and Put Options