Question

A one-year call option on a stock with a strike price of $30 costs $3; a one-year put option on the stock with a strike price of $30 costs $4. Suppose that a trader buys two call options and one put option. The breakeven stock price below which the trader makes a profit is:_______.

A. $25
B. $28
C. $26
D. $20

Answer 1

Answer: D= $20

Step-by-step explanation:

Call option cost - $3 x 2= 6

Put option cost -$4 x 1 = 4

Needs to make $10 any way

Call option BEP = $30 - $10 = $20

Put option BEP = $30 - $10 = $20

This is below the BEP. The breakeven stock price below which the trader makes a profit is $20