A short straddle position is formed by selling a call and a put on the same underlying asset, with the same exercise price and same expiration date. Given the following quotations from April 25, 2018 for a pair of Rio Tinto call and puts, answer the questions below. Strike price for both options: 3800 pence per share Option expiration date: July 21, 2018 Call price = 85 pence per share Put price = 75 pence per share

a) Plot the payoff and profit diagrams for the short straddle position whose components are given above. Make sure that your plots are as informative as positive.

b) suppose that the investor holds the short straddle position till option expiration and that, on July 21, 2018, Rio Tinto stock closes on 4000 pence. what is the net return (in pence) per share to the investor from the investment?