A call option on a stock with a strike price of $60 costs $8. A put option on the same stock with the same strike price costs $6. They both expire in 1 year. (a) How can these two options be used to create a straddle? (b) What is the initial investment? (c) Construct a table showing how the payoff and profit varies with ST in 1 year, for the straddle that you constructed. Whenever you need to refer to stock price on expiration date, use ST . The only notation that should show up in the table should be ST . The table should look like this: Stock Price Payoff Profit ST ? 60 ST > 60

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To create a straddle using a call option and a put option with the same strike price we can follow t... View the full answer