You Hold a Straddle on a Stock That You Bought

question 21

Multiple Choice

You hold a straddle on a stock that you bought a month ago and that still has two months to expiry.Assume the options are European.An unexpected increase of $1 in the price of the stock

• A)Changes the value of your straddle by more than $1.
• B)Changes the value of your straddle by at most $1.
• C)Leaves the value of your straddle unchanged.
• D)Any of the above can happen.

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Definitions:

Net Income

The total earnings of a company after all expenses and taxes have been deducted from total revenue, representing profitability.

Stockholders' Equity

This represents the ownership interest of shareholders in a corporation, calculated as total assets minus total liabilities.

Decrease Total Assets

A reduction in the overall value of a company's assets, which may result from expenses, losses, or distributions to owners.

Wages Expense

It represents the total amount of monetary compensation, bonuses, and the value of non-cash benefits that a company pays to its employees during a specific period.