Question
The current stock price of Alcoa is $68 and the stock does not pay dividends. You think in the near future there will be a
The current stock price of Alcoa is $68 and the stock does not pay dividends. You think in the near future there will be a dramatic movement in stock price depends on the result of a test for new drug. However the direction of the price movement is not clear, so you decide to establish a straddle strategy using at the money options with 1 month to expiration to take advantage of it. Both put and call at the money options have a premium of $5. 1 Month later, the test is postponed, as a result the stock price drops to $65. What is your profit or loss using your strategy?
A. | 1000 loss | |
B. | 300 loss | |
C. | 700 loss | |
D. | 700 profit | |
E. | 1000 profit | |
F. | 300 profit |
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