Assume that you establish a long straddle on a security currently selling for $120/share. To do this, they purchase a 6-month call at $125 for a premium of $2/share and a 6 month put at $125 for a premium of $7.50.

Use this set up to answer the following 2 questions:

What would be your profit or loss if the security was worth $130 after 6 months?

a. Gain of $3 per share b. Loss of $5 per share c. Loss of $9.50 per share d. Gain of $7.50 per share

What would be your profit or loss if the security was worth $100 after 6 months?

a. A gain of $15.50 per share b. A loss of $9.50 per share c. A gain of $25 per share d. A gain of $17.50 per share