Chapter 06 · Section 6.1
Breakeven Point
Market Outlook : STABLE Profit Potential : limited Loss Potential : practically unlimited Breakeven Points :
The breakeven points occur when market price at expiration equals...
a) ...the high exercise price minus the premium.
b) ...the high exercise price plus the premium.
c) ...the low exercise price minus the premium.
d) ...the low exercise price plus the premium.
e) b and c
f) b and d
The trader is short a call and short a put. Therefore, he may have two breakeven points. The strangle strategy is very similar to the straddle.