The price of a stock is currently $20. A three-month at-the-money call option on the stock is trading at $1.25. The risk-free rate is 4.0%. Calculate the maximum profit and loss for an investor who buys a straddle.

a.

The maximum loss is $1.25 whereas the maximum profit is $17.70

b.

The maximum loss is $0.8 whereas the maximum profit is $9.90.

c.

The maximum loss is $2.30 whereas the profit is unlimited.

d.

There is no loss on the strategy and an unlimited upward potential