Question
Synthetic Options: Draw the payoff (including the premiums paid/received) diagram for following strategies: -Let us assume a trader thinks that the underlying security, STOCK, will
Synthetic Options: Draw the payoff (including the premiums paid/received) diagram for following strategies:
-Let us assume a trader thinks that the underlying security, STOCK, will experience significant volatility in the near term. Let us say the share price of STOCK is $100 today. The trader buys a call option on STOCK with strike price $110 and buys a put option on STOCK with strike price $90. (Assume that the premium on call as well as the put option are same)
-Let us assume a trader thinks that the underlying security, STOCK, will not rise or fall much by expiration. Let us say the share price of STOCK is $100 today. The trader buys a call option on STOCK with strike price $90 at a premium of $55 and buys a call option on STOCK with strike price $110 at a premium of $5. In addition, the trader sells two call options on STOCK with strike price $100 at a premium of $20 each.
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