OEX is above 617.10 or below 582.90 at expiration
| Buy 1 OEX 600 Straddle at $17.10 Debit
If the OEX index exercise settlement value is above the upside break-even point of 617.10 at expiration, at 630 for instance, the put will expire out-of-the-money and worthless.
The call will be in-the-money and worth its cash settlement amount:
630 (settlement value) – $600 (call strike price) = $30 x $100 = $3,000
On the other hand, if OEX settles below the downside break-even point of 582.90 at expiration, at 530 for instance, the call will expire out-of-the-money and worthless. The put will be in-the-money and worth its cash settlement amount:
$600 (put strike price) – 530 (settlement value) = $30 x $100 = $3,000
In either instance, if you exercise either in-the-money option and receive its cash settlement amount, you would then see a profit:
$3,000 settlement amount received for call or put
- $1,710 total debit initially paid for straddle
The investor’s prediction of at least a 5% move in OEX index up or down (from 600 to either 670 or 530) has proven true. The upside or downside profit of $1,290 represents a return on an initial investment of $1,710 premium paid for the straddle of approximately 75.4% over the 1-month life of the straddle.