CMA Final · Strategic Financial Management · Options
A trader buys a straddle on a stock by purchasing a call and a put, both with strike ₹500, paying premiums of ₹30 and ₹20. At expiry the share price is ₹560. What is the net profit per share on the straddle?
The net profit is ₹10 per share. The call earns 560 minus 500, which is ₹60, the put expires worthless, and the total premium paid for both options is ₹50, so profit is 60 minus 50.
- A₹10Correct
- B₹60
- C₹50
- D-₹50
Explanation
Total premium = 30 + 20 = ₹50. Call payoff = 560 - 500 = 60; put expires worthless. Net profit = 60 - 50 = ₹10. Option ₹60 ignores premiums; ₹50 is just the premium.
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