JakeWatkins1628 JakeWatkins1628

23-12-2022
Business

Answered

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

Answer :

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