Series 7 practice questionhardOptions — Long Straddle Calculation
An investor buys 1 DEF Oct 75 call at $6 and buys 1 DEF Oct 75 put at $5 (long straddle). At expiration, DEF is at $75. What is the investor's result?
- AGain of $1,100
- BLoss of $600
- CLoss of $1,100✓ Correct answer
- DBreakeven
Explanation
Why C — Loss of $1,100
At the strike price, both options expire worthless (or at-the-money with no intrinsic value). The investor loses the total premium paid: $6 + $5 = $11 per share, or $1,100. This is the worst-case scenario for a long straddle — the stock doesn't move at all from the strike price.
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