Use the following information to answer question 5 to 8. You buy one Xerox June
ID: 2781960 • Letter: U
Question
Use the following information to answer question 5 to 8.
You buy one Xerox June 60 call contract and one Xerox June 60 put contract. The call premium is $5 and the put premium is $3.
5. Your strategy is called
a. a short straddle
b. a long straddle
c. a horizontal spread
d. a covered call
6. Your maximum loss from this position could be
a. $500
b. $300
c. $800
d. $200
7. At expiration, you break even if the stock price is equal to
a. $52
b. $60
c. $68
d. both a and c
8. Your strategy is useful if you believe that the stock price
a. will remain between $52 and $68
b. will increase beyond $68
c. will decline below $52
d. both b and c
Explanation / Answer
5 b. a long straddle
6 c $800 which is the cost of options
7) d. both a and c
8 d. both b and c