Suppose the effective annual interest rate is 6% and Wagner Company’s stock currently trades for $88 per share. Suppose the premium for a 1-year $85-strike call option on the stock is $19.87, and the premium for a $85-strike put is $12.06. What is the profit earned on a long $85-strike straddle if Wagner’s stock is worth $84.15 when the options expire? (You may assume the stock pays no dividends over the next year.)

Answer rating: 100% (QA)

A straddle is a strategy involving the purchase of both a call option and a put option with the same strike price and expiration date The profit earne... View the full answer