Maria's Straddle Option Strategy

Hard Derivative Strategies Option Strategies

Maria is an options trader who is evaluating various strategies for a stock that she believes is about to see increased volatility. The stock is currently trading at $50, and she anticipates that it could either rise significantly to $70 or fall to $30 over the next month due to upcoming earnings reports. To profit from this anticipated volatility, Maria is considering using a straddle strategy. A straddle consists of buying a call option and a put option at the same strike price and expiration date.

Maria finds that the call option with a strike price of $50 is priced at $5, while the put option with the same strike price is priced at $4. She plans to hold both options until expiration.

Which of the following represents Maria's potential profit or loss at expiration based on her straddle strategy?

Maria has unlimited profit potential if the stock price exceeds $70, while her maximum loss is $9.

Maria can only profit if the stock price moves above $64 or below $36 at expiration.

Maria breaks even at stock prices of $59 and $41.

Hint

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