A trader enters a top vertical combination position, which is essentially a reverse strangle. You are selling a call option on the stock with a strike price of $40 for $4 and a put option with a strike price of $35 for $5.

a) At what stock prices will the trader break even on the strangle? For what price range of the underlying asset does the trader make profits? Make sure you show the work.

b) What will be the trader's profit/loss if the stock price at expiration is $43?

Answer rating: 100% (QA)

Introduction A top vertical combination position also known as a reverse strangle involves selling both a call option and a put option on the same und... View the full answer