Writes the call and put options listed on the same stock

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Reference no: EM131899508

An investor writes the call and put options listed below on the same stock (with the same expiration dates). Graph the profit diagram of this straddle position.

95 call priced at $1.50

95 put priced at $3.50

a. If the stock price at expiration is $98, what is the Net Profit (Loss) on this position?

b. Using the information from the prior problem, which of the following statements is true? Select one:

a. The writer is hoping that the stock price is between $90 and $100 at expiration.

b. The buyer of the call option is hoping that the stock price drops below $95.

c. The writer yields a net profit if the stock price is below $90.

d. If the stock price is $95 at expiration, the writer has an incentive to not transact.

Reference no: EM131899508

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