# Between Break-Even Points

## SPX is between 1441.50 and 1358.50 at expiration

With the exercise settlement value of the SPX index exactly at the strike price of \$1400 at expiration, both the 1400 call and the 1400 put would expire at-the-money and with no value. The maximum, predetermined loss of the \$4,150 debit paid would be realized.

At expiration, with SPX exercise settlement value at either the upside break-even point of 1441.50, or the downside break-even point of 1358.50, the call’s or put’s cash settlement amount would be equal to the initial debit paid for the straddle.

With SPX settling at expiration between 1441.50 and 1358.50, but not at the \$1400 strike price, one of the options would expire in-the-money and have intrinsic value, with the other expiring worthless. In this case, the in-the-money option could be exercised to recoup some of the original straddle purchase price resulting in a partial loss for the position.

For example, the SPX index exercise settlement value is 1425 at expiration. The 1400 put would expire out-of-the-money and with no value, and the 1400 call would have a cash settlement amount of:

1425 (settlement value) – \$1400 (call strike price) = \$25 x \$100 = \$2,500

The level of SPX did change over one month, but not as much as anticipated. The straddle that cost \$41.50 is now worth only the intrinsic value of its in-the-money call, or \$25. The investor could exercise the call and recoup some of the straddle’s initial purchase price. If the SPX 1400 call is exercised for cash settlement amount \$2,500 then the loss for the position would be:

\$4,150 debit initially paid for straddle
\$2,500 settlement amount received at call’s exercise
\$1,650 partial loss

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