Suppose the investor adds a call to the long straddle, a transaction known as a strap. What will this do to the break even stock prices?
a. lower both the upside and downside breakevens
b. raise both the upside and downside breakevens
c. raise the upside and lower the downside breakevens
d. lower the upside and raise the downside breakevens
e. none of the above
Answer: A
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FIN402 Chapter 7
- Which of the following statements best describes the nature of option time value decay?
- The purchase of one option and the sale of another is known as
- Which of the following have similar profit graphs?
- Early exercise is a disadvantage in which of the following transactions?
- Which of the following is the best strategy for an expected fall in the market?
- Which of the following transactions can have an unlimited loss?
- Which of the following strategies does not profit in a rising market?
- Suppose a put is added to a straddle. This overall transaction is called a strip. Determine the profit at expiration on a strip if the stock price at expiration is $36.
If the answers is incorrect or not given, you can answer the above question in the comment box. If the answers is incorrect or not given, you can answer the above question in the comment box.