Question

A customer writes 1 OEX (S&P 100) June 820 call at 13 and buys 1 OEX June 830 call at 6, when the index is trading at 826. The breakeven point is:

A) 823.
B) 830.
C) 827.
D) 826.

Answer 1

The breakeven point is C) 827.

Step-by-step explanation:

The breakeven point in this scenario can be calculated by adding the premium paid for the 820 call and subtracting the premium received from the 830 call. The breakeven point is the point at which the profit is zero, so the formula is:

Break-even point = Strike price of the 820 call + Premium paid for the 820 call - Premium received from the 830 call

Inserting the given values into the formula:

1. Break-even point = 820 + 13 - 6
2. Break-even point = 827

Therefore, the breakeven point is 827.