Question
A strangle is a position that is long both a call and a put with the put having a lower strike price than the call.
A strangle is a position that is long both a call and a put with the put having a lower strike price than the call.
Consider such a position with the put having a strike price of $48 and the call having a strike price of $52. The premium for the call is $1.50 and the premium for the put is $.50. Create a table and graph the overall payoff and net profit of this position as function of ST, the stock price at maturity.Vary ST from $40 to $60 in increments of $2.
How might your view about ST be different from a view that would cause you to take the straddle in the previous problem? Assume that the current stock price is $50?
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Financial Reporting And Analysis
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
8th Edition
1260247848, 978-1260247848
