FREE Trial

A call option with a strike price of $50 costs $2. A put option with a strike

Question:

A call option with a strike price of $50 costs $2. A put option with a strike price of $45 costs $3. Explain how a strangle can be created from these two options. What is the pattern of profits from the strangle?
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 50% (12 reviews)

A strangle is created ...View the full answer


answer-question-section
Answered By
tutor-profile-image
PALASH JHANWAR
I am a Chartered Accountant with AIR 45 in CA - IPCC. I am a Merit Holder ( B.Com ). The following is my educational details. PLEASE ACCESS MY RESUME FROM THE FOLLOWING LINK: https://drive.google.com/file/d/1hYR1uch-ff6MRC_cDB07K6VqY9kQ3SFL/view?usp=sharing
3.80+ 3+ Reviews 10+ Question Solved
Related Book For  book-img-for-question
Options Futures and Other Derivatives

Options Futures and Other Derivatives

ISBN: 978-0134472089

10th edition

Authors: John C. Hull

See More Books
Question Posted:
See More Questions

Related Video

A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

Students also viewed these Corporate Finance questions

Profitable Artistry A Guide To Earning From Your Craft Craft Your Way To Profit An Expert Guide To Monetizing Your Artistic Talents On Amazon 1st Edition - ISBN: B0CRQZBJKQ - Free Book