Acustomer buys 5 abc jan 30 straddles for a total premium of $3,500. just prior to expiration abc stock closes at $21, and the customer closes the options positions at intrinsic value.
the customer will have a:

a. $1,000 gain
b. $1,000 loss
c. $3,500 gain
d. $3,500 loss

A) $1,000 gain

Explanation:

When a client buys a straddle, he is purchasing a call and a put option on the same stock with the same strike price and expiration date.

this client bought 5 ABC Jan 30 calls  and 5 ABC Jan 30 puts:

each contract was worth $700 (= $3,500 / 5 contracts)

If the price of the stock fall below $30, the call option will not be taken, but the put option will be enforced. Since the value of the stock is $21, this means that the put option resulted in a $900 profit (= ($30 - $21) x 100).

The client paid $700 for each option, therefore his profit per option = $900 - $700 = $200

His total profit = $200 x 5 options = $1,000

answer; (consensus);

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