Use the following information to answer question 5 to 8. You buy one Xerox June

Question

Use the following information to answer question 5 to 8.

You buy one Xerox June 60 call contract and one Xerox June 60 put contract. The call premium is $5 and the put premium is $3.

5.             Your strategy is called

                a. a short straddle

                b. a long straddle

                c. a horizontal spread

                d. a covered call

6.             Your maximum loss from this position could be

                a. $500

                b. $300

                c. $800

                d. $200

7.             At expiration, you break even if the stock price is equal to

                a. $52

                b. $60

                c. $68

                d. both a and c

8.             Your strategy is useful if you believe that the stock price

                a. will remain between $52 and $68

                b. will increase beyond $68

                c. will decline below $52

                d. both b and c

Explanation / Answer

5   b. a long straddle

6 c $800 which is the cost of options

7) d. both a and c

8    d. both b and c

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