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Question 1 12 pts Which statement is INCORRECT about a straddle? a. long straddle has unlimited potential profit c. Option traders short a straddle to
Question 1 12 pts Which statement is INCORRECT about a straddle? a. long straddle has unlimited potential profit c. Option traders short a straddle to bet on high volatility of stock returns d. A straddle can be constructed by a long call and a long put b. Option traders often buy a straddle to bet on risky future events affecting a company that can impact the stock price in either a positive or negative direction. Current stock price S is $22. Time to maturity Tis six months. Continuously compounded, risk-free interest rate ris 5 percent per year. European options prices are given in the following table: Strike Price Call Price Put Price K1 = $17.50 $5 $0.05 K2 = 20 3 0.75 K3 = 22.50 1.75 1.75 K4 = 25 0.75 3.50 Which statement is INCORRECT about a butterfly spread by going long calls with strike prices K1 = $17.50 and K3 = $22.50 and selling short two calls with a strike price 20. The maximum loss is -0.75 if you long butterfly You will make a profit when you long a butterfly spread and stock price changes very little The maximum profit is 1.75 if you long butterfly The loss could be unlimited if you long butterfly
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