2. Assume that a trader believes that during the vacation periods actual realized volatility is lower than the implied volatility. To exploit this opportunity a trader takes a short position in a strangle to cover the cost of the long straddle position. If the actual volatility is 30% less than the implied volatility, sketch out his volatility strategy. Assume the following parameters:

• S(0) 5 1600; T 5 3 month; r 5 5%; σ 5 53%