Question

1. A trader buys 2 call options on a stock with a strike price of $35 and a put option on the same stock with a strike price of $30. Both call and put options have the same maturity. The call costs $2 and the put costs $1. What are the stock prices the trader will break-even at?

1. $27.5 and $35
2. $25 and $40
3. $25 and $37.5
4. $30 and $35

Answer 1

Break even is the no profit/no loss situation

Break even price = Strike price of call + Total Premium paid/2 and strike price of Put - total premium paid

= 35 + 5/2 and 30 - 5

i.e. $37.5 and $25

Hence, the answer is c.