Question

"A customer buys 5 ABC Jan 30 Straddles for a total premium of $3,500. Just prior to expiration ABC stock closes at $21, and the customer closes the options positions at intrinsic value. The customer will have a:"

Answer 1

Answer:

$1,000 gain

Explanation:

At the time when the customer purchased straddle, the call and put option is purchased for a similar stock with similar price and expiration date

As it is to be shown that the customer purchased  5 ABC Jan 30 calls and 30 puts

Also the worth of each contract is

= $3,500 ÷ 5

= $700

Now if the price is less than $30, so the call option should not be considered and the put option should be considered as the value is $21

So, here the profit is

= ($30 - $21) × $100

= $900

So here profit per option is

= $900 - $700

= $200

So, the total profit is

= $200 × 5 options

= $1,000