Today is May 22, 2023 (Monday). Dave & Buster's Entertainment, Inc. (ticker: PLAY), a company on your watch list, is expected to announce its quarterly earnings on June 5 (i.e., two weeks from today). You believe its stock price will have a sharp move once its earnings report is released, but you are uncertain as to the direction. Thus, you decide to long a straddle to take advantage of your belief. PLAY's current stock price is $33.57. The options closest to PLAY's earnings announcement date (June 5) are those that will expire on June 16, 2023. The bid and ask prices for those options are as follows:

  On the EA date, although PLAY announced its earnings higher than analysts' consensus estimate ($1.45 per share actual vs. $1.26 estimated), the executives provided a somewhat pessimistic view for the next several quarters due to recession concerns. Its share price dropped to $31.92 accordingly. If you exercise your options on the EA date, what is your profit or loss (per share) for your straddle with a strike price of $30? What is your profit or loss for your straddle with a strike price of $35?

Answer rating: 100% (QA)

To calculate your profit or loss for a straddle strategy with a strike price of 30 and 35 when you e... View the full answer