In a straddle strategy, the investor buys a European call option and put option with the same strike price and expiration. In the provided case, the investor purchased a 6-month European call option for $5 with the strike price of $58, and at the same time, purchased a 6-month put option for $4 with a strike price of $58.

• Cash outflow (cost) = $5 + $4 = $9
• Payoff on a put option = max(X − S, 0) = max(58 − 65, 0) = $0 (the put expires worthless since the stock price is above the strike)
• Payoff on a call option = max(S − X, 0) = max(65 − 58, 0) = $7
• Profit of the straddle = $7 − $9 = −$2

The straddle results in a loss because the stock price movement of $7 (from $58 to $65) is not large enough to cover the total premium paid of $9. The breakeven points for this straddle are at $49 (58 − 9) and $67 (58 + 9).