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Consider a long straddle constructed from options which have an expiration date of January 14, 2022. The following table displays the possible prices of Acme
Consider a long straddle constructed from options which have an expiration date of January 14, 2022. The following table displays the possible prices of Acme stock on January 14, as well as the payoffs accruing to someone who holds a long straddle on Acme stock:
Probability | 0.2 | 0.3 | 0.2 | 0.2 | 0.1 |
Stock Price | $80 | $90 | $100 | $110 | $120 |
Gain from long straddle | $20 | $10 | $0 | $10 | $20 |
A long straddle is created using two options. For each option in the straddle above, indicate whether it is a put or a call, whether it is bought or sold, and calculate what its strike price is. Explain your answer.
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