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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.

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