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The current price of a non-dividend paying stock is 40 and the continuously compounded annual risk-free rate of return is 8%. The following table shows

The current price of a non-dividend paying stock is 40 and the continuously compounded annual risk-free rate of return is 8%. The following table shows call and put option premiums for three- month European of various exercise prices: Exercise Price Call Premium Put Premium 35 6.13 0.44 40 2.78 1.99 45 5.08 A trader interested in speculating on volatility in the stock price is considering two investment strategies. The first is a 40-strike straddle. The second is a strangle consisting of a 35-strike put and a 45-strike call. Determine the range of stock prices in 3 months for which the strangle outperforms the straddle. 0.97

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