Chapter 9: Options Intermediate Test: Straddles:

Question 1

Long 1 ABC JAN 50 call @ 3
Long 1 ABC JAN 50 put @ 4

Answer 1

Type: Long Straddle

Calculations:
Total premium = 7
Call breakeven = 50 + 7
Put breakeven = 50 − 7

Breakevens:
57 and 43

Rationale:
Because the investor has purchased both options, there is an investment cost of 7 points. The breakevens are the call strike plus the 7 points and the put strike minus the 7 points. The stock must move above 57 or below 43 for the investor to profit. If it stays within that range, the seller is the winner.

Question 2

Short 1 XYZ APR 80 call @6
Short 1 XYZ APR 80 put @5

Answer 2

Type: Short Straddle

Calculations:
Total credit = 11
Call breakeven = 80 + 11
Put breakeven = 80 − 11

Breakevens:
91 and 69

Rationale:
Because the investor has sold both options, there is a total credit of 11 points. The breakevens are the call strike plus the 11 points and the put strike minus the 11 points. The stock must stay between 69 and 91 for the investor to keep the premium. If it moves outside that range, the buyer is the winner.

Question 3

Long 1 LMN OCT 100 call @9
Long 1 LMN OCT 100 put @ 8

Answer 3

Type: Long Straddle

Calculations:
Total premium = 17
Call breakeven = 100 + 17
Put breakeven = 100 − 17

Breakevens:
117 and 83

Rationale:
Because the investor has purchased both options, there is an investment cost of 17 points. The breakevens are the call strike plus the 17 points and the put strike minus the 17 points. The stock must move above 117 or below 83 for the investor to profit. If it stays within that range, the seller is the winner.

Question 4

Short 1 RST DEC 60 call @ 4
Short 1 RST DEC 60 put @ 7

Answer 4

Type: Short Straddle

Calculations:
Total credit = 11
Call breakeven = 60 + 11
Put breakeven = 60 − 11

Breakevens:
71 and 49

Rationale:
Because the investor has sold both options, there is a total credit of 11 points. The breakevens are the call strike plus the 11 points and the put strike minus the 11 points. The stock must stay between 49 and 71 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 5

Long 1 QED MAR 30 call @ 5
Long 1 QED MAR 30 put @ 2

Answer 5

Type: Long Straddle

Calculations:
Total premium = 7
Call breakeven = 30 + 7
Put breakeven = 30 − 7

Breakevens:
37 and 23

Rationale:
Because the investor has purchased both options, there is an investment cost of 7 points. The breakevens are the call strike plus the 7 points and the put strike minus the 7 points. The stock must move above 37 or below 23 for the investor to profit. If it stays within that range, the seller is the winner.

Question 6

Short 1 UVW JUN 150 call @ 12
Short 1 UVW JUN 150 put @ 10

Answer 6

Type: Short Straddle

Calculations:
Total credit = 22
Call breakeven = 150 + 22
Put breakeven = 150 − 22

Breakevens:
172 and 128

Rationale:
Because the investor has sold both options, there is a total credit of 22 points. The breakevens are the call strike plus the 22 points and the put strike minus the 22 points. The stock must stay between 128 and 172 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 7

Short 1 HJK JAN 40 call @ 3
Short 1 HJK JAN 40 put @ 6

Answer 7

Type: Short Straddle

Calculations:
Total credit = 9
Call breakeven = 40 + 9
Put breakeven = 40 − 9

Breakevens:
49 and 31

Rationale:
Because the investor has sold both options, there is a total credit of 9 points. The breakevens are the call strike plus the 9 points and the put strike minus the 9 points. The stock must stay between 31 and 49 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 8

Long 1 MNO APR 200 call @14
Long 1 MNO APR 200 put @11

Answer 8

Type: Long Straddle

Calculations:
Total premium = 25
Call breakeven = 200 + 25
Put breakeven = 200 − 25

Breakevens:
225 and 175

Rationale:
Because the investor has purchased both options, there is an investment cost of 25 points. The breakevens are the call strike plus the 25 points and the put strike minus the 25 points. The stock must move above 225 or below 175 for the investor to profit. If it stays within that range, the seller is the winner.

Question 9

Short 1 PQR NOV 95 call @ 8
Short 1 PQR NOV 95 put @ 7

Answer 9

Type: Short Straddle

Calculations:
Total credit = 15
Call breakeven = 95 + 15
Put breakeven = 95 − 15

Breakevens:
110 and 80

Rationale:
Because the investor has sold both options, there is a total credit of 15 points. The breakevens are the call strike plus the 15 points and the put strike minus the 15 points. The stock must stay between 80 and 110 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 10

Long 1 FGH DEC 20 call @ 4
Long 1 FGH DEC 20 put @ 3

Answer 10

Type: Long Straddle

Calculations:
Total premium = 7
Call breakeven = 20 + 7
Put breakeven = 20 − 7

Breakevens:
27 and 13

Rationale:
Because the investor has purchased both options, there is an investment cost of 7 points. The breakevens are the call strike plus the 7 points and the put strike minus the 7 points. The stock must move above 27 or below 13 for the investor to profit. If it stays within that range, the seller is the winner.

Question 11

Short 1 JKL MAY 70 call @ 5
Short 1 JKL MAY 70 put @ 9

Answer 11

Type: Short Straddle

Calculations:
Total credit = 14
Call breakeven = 70 + 14
Put breakeven = 70 − 14

Breakevens:
84 and 56

Rationale:
Because the investor has sold both options, there is a total credit of 14 points. The breakevens are the call strike plus the 14 points and the put strike minus the 14 points. The stock must stay between 56 and 84 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 12

Long 1 RIV AUG 110 call @ 12
Long 1 RIV AUG 110 put @ 10

Answer 12

Type: Long Straddle

Calculations:
Total premium = 22
Call breakeven = 110 + 22
Put breakeven = 110 − 22

Breakevens:
132 and 88

Rationale:
Because the investor has purchased both options, there is an investment cost of 22 points. The breakevens are the call strike plus the 22 points and the put strike minus the 22 points. The stock must move above 132 or below 88 for the investor to profit. If it stays within that range, the seller is the winner.

Question 13

Short 1 BCD FEB 25 call @ 2
Short 1 BCD FEB 25 put @ 4

Answer 13

Type: Short Straddle

Calculations:
Total credit = 6
Call breakeven = 25 + 6
Put breakeven = 25 − 6

Breakevens:
31 and 19

Rationale:
Because the investor has sold both options, there is a total credit of 6 points. The breakevens are the call strike plus the 6 points and the put strike minus the 6 points. The stock must stay between 19 and 31 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 14

Long 1 WXY JUL 300 call @ 18
Long 1 WXY JUL 300 put @ 20

Answer 14

Type: Long Straddle

Calculations:
Total premium = 38
Call breakeven = 300 + 38
Put breakeven = 300 − 38

Breakevens:
338 and 262

Rationale:
Because the investor has purchased both options, there is an investment cost of 38 points. The breakevens are the call strike plus the 38 points and the put strike minus the 38 points. The stock must move above 338 or below 262 for the investor to profit. If it stays within that range, the seller is the winner.

Question 15

Short 1 NOP JAN 120 call @ 9
Short 1 NOP JAN 120 put @ 11

Answer 15

Type: Short Straddle

Calculations:
Total credit = 20
Call breakeven = 120 + 20
Put breakeven = 120 − 20

Breakevens:
140 and 100

Rationale:
Because the investor has sold both options, there is a total credit of 20 points. The breakevens are the call strike plus the 20 points and the put strike minus the 20 points. The stock must stay between 100 and 140 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 16

Long 1 ZEN SEP 90 call @ 7
Long 1 ZEN SEP 90 put @ 6

Answer 16

Type: Long Straddle

Calculations:
Total premium = 13
Call breakeven = 90 + 13
Put breakeven = 90 − 13

Breakevens:
103 and 77

Rationale:
Because the investor has purchased both options, there is an investment cost of 13 points. The breakevens are the call strike plus the 13 points and the put strike minus the 13 points. The stock must move above 103 or below 77 for the investor to profit. If it stays within that range, the seller is the winner.

Question 17

Short 1 CAR APR 35 call @ 4
Short 1 CAR APR 35 put @ 5

Answer 17

Type: Short Straddle

Calculations:
Total credit = 9
Call breakeven = 35 + 9
Put breakeven = 35 − 9

Breakevens:
44 and 26

Rationale:
Because the investor has sold both options, there is a total credit of 9 points. The breakevens are the call strike plus the 9 points and the put strike minus the 9 points. The stock must stay between 26 and 44 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 18

Long 1 VTX NOV 150 call @ 13
Long 1 VTX NOV 150 put @ 12

Answer 18

Type: Long Straddle

Calculations:
Total premium = 25
Call breakeven = 150 + 25
Put breakeven = 150 − 25

Breakevens:
175 and 125

Rationale:
Because the investor has purchased both options, there is an investment cost of 25 points. The breakevens are the call strike plus the 25 points and the put strike minus the 25 points. The stock must move above 175 or below 125 for the investor to profit. If it stays within that range, the seller is the winner.

Question 19

Short 1 GHI DEC 55 call @ 6
Short 1 GHI DEC 55 put @ 8

Answer 19

Type: Short Straddle

Calculations:
Total credit = 14
Call breakeven = 55 + 14
Put breakeven = 55 − 14

Breakevens:
69 and 41

Rationale:
Because the investor has sold both options, there is a total credit of 14 points. The breakevens are the call strike plus the 14 points and the put strike minus the 14 points. The stock must stay between 41 and 69 for the investor to profit. If it moves outside that range, the buyer is the winner.

Question 20

Long 1 TUV SEP 75 call @ 6
Long 1 TUV SEP 75 put @ 9

Answer 20

Type: Long Straddle

Calculations:
Total premium = 15
Call breakeven = 75 + 15
Put breakeven = 75 − 15

Breakevens:
90 and 60

Rationale:
Because the investor has purchased both options, there is an investment cost of 15 points. The breakevens are the call strike plus the 15 points and the put strike minus the 15 points. The stock must move above 90 or below 60 for the investor to profit. If it stays within that range, the seller is the winner.