Question
You buy one Xerox June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
You buy one Xerox June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
a). Your strategy is called ___________
a long straddle.
b). Your maximum loss from this position could be ____________
$800.
-$5 + (-$3) = -$8 X 100 = $800.
c) At expiration, you break even if the stock price is equal to ___________
Call: -$60 + (-$5) + $3 = $68 (Break even); Put: -$3 + $60 + (-$5) = $52 (Break even); thus, if price increases above $68 or decreases below $52, a profit is realized.
show step by step how to get these numbers
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