Consider a short straddle constructed from options on 3M stock which have an expiration date of June 21, 2019 (the third Friday in June). The following table displays the only possible prices of 3M stock on June 21, as well as the payoffs accruing to someone who holds a short straddle on the stock:

Stock price$80$90$100$110$120

Gain from short straddle-$10$0$10$0-$10

a. A short straddle is created using two options. For each option in the short straddle above, indicate whether it is a put or a call, whether it is bought or sold, and what its strike price is. What is the maximum possible loss on this short straddle? What is the maximum possible loss on a real short straddle?

Explain your answer to all of the above questions.

b. What is the sum of the premiums of the options you identified in part (a)? Explain.

c. Why would someone enter into a short straddle? Explain carefully.