Question
You decide you want to set up a short straddle on an index that currently stands at 18,700 by writing 115 calls and puts on
You decide you want to set up a short straddle on an index that currently stands at 18,700 by writing 115 calls and puts on the index, both of which expire in 3 months and have a strike price of 187. The put price is $4.55 and the call price is $5.15. What will it cost to set up the straddle? How much profit/loss can you make if the market falls by 600 points? Explain why someone would use a short straddle (what is the bet they are making?). Draw and Label the profit potential of the short straddle. Lable axis, strike price, break-even points, and which is the call and put.
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