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Answer: DISCK must move up or down by at least $3.80
For a **long straddle**, the breakeven move equals the **total premium paid** for the call plus the put. Using put-call parity: \[ p = c + K e^{-rT} - S \] \[ p = 2.05 + 20 e^{-0.03\cdot 0.5} - 20 \approx 1.75 \] So total straddle cost is: \[ 2.05 + 1.75 \approx 3.80 \] Therefore, the stock must move **up or down by at least $3.80** for the position to break even.
Author: Manit Arora
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$20.00. Peter purchases a straddle with six-month European at-the-money options; i.e., S = K = $20.00. If the price of a call option is $2.05, then how much will the stock price need to move in order for him to at least achieve breakeven profit (reminder that profit = final payoff +/- initial premium)?A
DISCK must move up by at least $2.05
B
DISCK must move down by at least $1.67
C
DISCK must move up or down by at least $3.80
D
DISCK must move up or down by at least $5.75
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