CMA Final · Strategic Financial Management · Options
A trader buys a straddle on Ganga Cements by buying one call and one put, each with strike ₹600, paying premiums of ₹22 and ₹18 respectively. At expiry the share is at ₹655. What is the net profit per share on the straddle?
The straddle earns ₹15 per share. The call is worth ₹55 at expiry while the put is worthless, and the total premium paid on both legs is ₹40, so net profit is 55 − 40 = ₹15.
- A₹15Correct
- B₹55
- C₹(40)
- D₹95
Explanation
Call payoff = 655 − 600 = 55; put expires worthless. Total premium = 22 + 18 = 40. Net profit = 55 − 40 = ₹15. Option ₹55 ignores premiums; ₹(40) assumes both lapse.
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