Series 7 practice questionmediumOptions — Straddle Maximum Loss
What is the maximum loss for a long straddle?
- AUnlimited
- BThe call premium only
- CThe total of both premiums paid✓ Correct answer
- DThe strike price minus the total premiums
Explanation
Why C — The total of both premiums paid
The maximum loss for a long straddle is the total of both premiums paid (call premium + put premium). This occurs when the stock price equals the strike price at expiration, causing both options to expire worthless. The investor loses the entire investment in both options.
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