Products & RisksQuestion 37 of 125
An investor buys 1 XYZ 50 call for 4 and 1 XYZ 50 put for 3 (a long straddle). What are the two breakeven points?
a.$57 and $43
b.$54 and $46
c.$50 and $50
d.$61 and $39
Explanation
For a long straddle, the total premium is 7 points (4 + 3). The upside breakeven is the strike plus total premium (50 + 7 = 57) and the downside breakeven is the strike minus total premium (50 - 7 = 43). The stock must move outside 43 to 57 for a net profit.
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Related questions on this topic
- An investor buys 1 XYZ 50 call for 5 and sells 1 XYZ 60 call for 2. What is the maximum gain on this spread?
- Using the same spread (buy 1 XYZ 50 call for 5, sell 1 XYZ 60 call for 2), what is the maximum loss?
- A long straddle consists of:
- An investor owns 100 shares of XYZ and sells 1 XYZ call against the position. This strategy is known as:
- An investor who owns 100 shares of a stock and is worried about a near-term decline could best protect the position by:
- An investor buys 100 shares of XYZ at $48 and buys 1 XYZ 45 put for 2 (a protective put). What is the maximum loss?
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