1. You are going to apply a very popular investment strategy with options called a straddle. Basically, you buy a call option and a put option for the same stock and the same maturity that are as close as possible to being at the money (stock and strike price very close to each other).
2. First, use the information given in the spreadsheet to create the payoffs in dollars. The payoff diagram will fill in as you put in payoffs.
3. Second, go out and choose a stock of your choice that has options traded on it and replicate a straddle strategy with real data. Yahoo Finance has easily accessible option data for stocks and can be viewed in straddle view.
4. What conclusions can you draw from this type of strategy in terms of upside and downside as well as when do you gain and when do you lose?

Given Information: Stock Price Strike Price Call Price Put Price 25.27 25.00 1.40 0.90 Calculations: Stock Price Call Payof 20 21 22 23 24 25 26 27 28 29 30 Put Payof Lo Total Payof 12.00 10.00 8.00 Payof 6.00 4.00 2.00 - 18 20 22 Call Payof Long Straddle 12.00 10.00 8.00 6.00 4.00 2.00 - 18 20 22 24 26 Stock Price Call Payof Put Payof Total Payof 28 30 32 32