Series 7 practice questionhardOptions — Short Straddle Calculation
An investor writes 1 GHI Sep 50 call at $4 and writes 1 GHI Sep 50 put at $3. At expiration, GHI is at $42. What is the investor's gain or loss?
- ALoss of $100✓ Correct answer
- BGain of $100
- CLoss of $800
- DGain of $700
Explanation
Why A — Loss of $100
Total premium received = $4 + $3 = $7. The call expires worthless. The put is exercised: the writer buys at $50 when the stock is $42, an $8 loss. Net result = $7 premium - $8 loss = -$1 per share, or $100 loss. The lower breakeven was $43 ($50 - $7), and the stock fell below it.
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