Series 7 practice questionhardOptions — Short Straddle Breakeven
An investor writes 1 JKL Mar 40 call at $3 and writes 1 JKL Mar 40 put at $2. What are the breakeven points?
- A$35 and $45✓ Correct answer
- B$37 and $43
- C$38 and $42
- D$36 and $44
Explanation
Why A — $35 and $45
Total premium received = $3 + $2 = $5. Upper breakeven = strike + total premium = $40 + $5 = $45. Lower breakeven = strike - total premium = $40 - $5 = $35. Between $35 and $45, the short straddle is profitable. The writer earns the maximum ($500) if the stock closes exactly at $40.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 755+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Investment Information & Recommendations questions
- Which statement is TRUE regarding LEAPS options?
- Compared to a covered call strategy, a protective put strategy provides:
- An investor buys 1 RST May 25 call at $5 and writes 1 RST May 35 call at $2. If RST closes at $32 at expiration, what…
- An investor writes 1 DEF Aug 55 call at $7 and buys 1 DEF Aug 65 call at $2. What is the breakeven point?