Series 7 practice questionmediumOptions — Short Straddle
An investor writes 1 STU May 45 call at $3 and writes 1 STU May 45 put at $2 (short straddle). What is the maximum gain?
- A$500✓ Correct answer
- B$300
- C$200
- D$450
Explanation
Why A — $500
The maximum gain on a short straddle is the total premium received: $3 + $2 = $5 per share, or $500 per contract. This occurs when the stock closes exactly at the $45 strike price at expiration, causing both options to expire worthless. The seller keeps all premium collected.
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