Question

A customer buys 1 XYZ Aug 60 call at 4 and 1 XYZ Aug 60 put at 2 when XYZ is at 61.25. If the stock rises to 68, and the customer lets the put expire and closes out the call at intrinsic value, the result is

Answer 1

a $200 gain

Step-by-step explanation:

This type of operation is called a long straddle. The break even price for the put option is $66 (= $60 + $6 call and put costs). Any price above this break even price results in a gain, so a $68 price will result in a $68 - $66 = $2 gain per share x 100 shares = $200 gain in total.