Question
A trader enters into a top vertical combination position, which is essentially a reverse strangle. He is selling a call option on the stock with
A trader enters into a top vertical combination position, which is essentially a reverse strangle. He is selling a call option on the stock with a strike price of $40 for $4 and selling a put option with a strike price of $35 for $5.
a) At what stock prices will the trader break even on the strangle? For what range of prices of the underlying asset does the trader make a profit? Be sure to show work.
b) What will be the traders profit/loss if the stock price at maturity is $43?
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Investments Analysis and Management
Authors: Charles P. Jones
12th edition
978-1118475904, 1118475909, 1118363299, 978-1118363294
