Question
Currently the stock market is at the level of 6,000. You see the stock market will move in the -5% to +5% range in the
Currently the stock market is at the level of 6,000. You see the stock market will move in the -5% to +5% range in the next 3 months. Your investment value is 5 billion USD. Data: - All option data refers to the stock market and has a maturity of 3 months. - The call option with a strike price of 5900 is traded at USD 671.78 per sheet - The call option with a strike price of 6100 is traded at USD 581.05 per share - The put option with a strike price of 5900 is traded at USD 546.60 per share - The put option with a strike price of 6100 is traded at USD 655.02 per share
Please calculate using short straddle formula
Question: 1. Explain why we should use short straddle strategy for this case. 2. What is the potential profit or loss if your estimation of the stock market range occurs? 3. What is the breakeven price? 4. What is the maximum profit and loss potential? 5. Please draw the graph for short straddle based on data above.
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