When a customer purchases a straddle, what is the total premium they must pay?

In a straddle, an investor simultaneously buys a call and a put option on the same underlying asset, with the same strike price and expiration date. To establish a straddle position, the investor pays a premium for each option purchased.

Therefore, the total premium the investor must pay is simply the sum of the premiums for both the call and put options. This is reflected in the correct choice, where the total premium is calculated by adding the cost of each option together.

This strategy positions the investor to benefit from significant price movement in either direction, whether it be a rise or a fall in the underlying asset’s price, making it crucial to consider the total upfront cost, which is represented by the combined premiums of both options.