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For each of the following portfolios, draw the expiry payoff diagram and explain what view of the market holding this position expresses: ( a )
For each of the following portfolios, draw the expiry payoff diagram and explain what
view of the market holding this position expresses:
a long one call and one put, both with strike price this is known as a straddle;
b short one forward and long two calls, all with strike price this is also a straddle
why?;
c Long one call and two puts, all with strike price this is known as a strip;
d Long one put and two calls, all with strike price this is known as a strap;
e Long one call with strike and one put with strike Compare the cases
known as a strangle and
Long one call with strike long one call with strike and short two calls
with strike known a butterfly spread
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