Johanna sold an Xyz Mar 50 call @3 and an Xyz Mar 50 put @2.25. Therefore, Johanna would profit if Xyz trades at all the following prices except:

A. 51.75

B. 55.25

C. 45.75

D. 53.00

First--what the heck is going on? Johanna sold/wrote a "straddle." She was willing to sell a call and sell a put with a strike price of $50 because she's convinced the stock won't move by very much up or down from $50. She's collected $5.25 per share. That means that she will make a profit if the stock

*fails*to move up or down by $5.25 or more. At $51.75, the put expires worthless, and the call has an intrinsic value of just $1.75. She would make a nice profit of $350 at $51.75, so "A" is eliminated. At $45.75, the call expires, and the put is worth $4.25. She would make a small profit of $100 at that price, so "C" is eliminated. At $53 the put expires, and the call is worth $3. She makes a profit of $225 in that case. What about "B"? She breaks even at $55.25, which is not a profit, making the answer to the question . . . B.

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