Suppose that EURO STOXX 50 stands at 3,500. Alfonso wants to set up a long straddle by purchasing 100 calls and an equal number of puts on the index, both of which expire in three months and have a strike of 35. The put price is listed at €1.65 and the call sells for €2.65. 

a. What will it cost Alfonso to set up the straddle, and how much profit (or loss) does he stand to make if the market falls by 750 points by the expiration dates of the options? What if it goes up by 750 points by expiration? What if it stays at 3,500?
b. Repeat part (a) assuming that Alfonso set up a short straddle.
c. What do you think are the risks and rewards of option straddles for an investor like Alfonso?