Problem $4$: Option Strategy: Straddle

You establish a straddle on Fincorp $($a leading Investment Banking Company$)$ using September call and put options with a strike price of $$120.$ The call premium is $$5\mathrm{.}00$ and the put premium is $$6\mathrm{.}00.$

Required:

a$.$ What is the most you can lose on this position?

b$.$ What will be your profit or loss if Fincorp is selling for $$130$ in September?

c$-1.$ What is the Break$-$even price for lower bound?

c$-2.$ What is the Break$-$even price for upper bound?

d$.$ Suppose the current Fincorp price is $$115,$ will you buy this straddle under the following scenarios:

$($d$1)$ There will be no significant events which affect Fincorp stock price a lot from now to September.

$($d$2)$ An important regulation on financial industry is going to be announced in September yet the details of this regulation has not been disclosed now $($d$3)$ A large competitor of Fincorp has a crisis and may need fire$-$sell its assets in the following month $($September$).$