Suppose you are considering two below strategies 

 1) a straddle and

 2) a strangle. 

The straddle has a strike of $10 for both the call and put. The strangle has a lower strike of $8 for the put and a higher strike of $12 for the call. 

a) Draw the payoff graph for the straddle strategy. Calculate the payoff of the straddle when the stock price falls to zero. decimal places) 

b) Draw the payoff graph for the strangle strategy. Calculate the payoff of the strangle when the stock price is $11 places) 

c) For the strangle if the put has a higher strike of $12 while the call has a lower strike of $8, the cost of the new strategy should be?

Answer rating: 100% (QA)

Here are the payoff graphs and calculations for the straddle and strangle strategies a Payoff Graph ... View the full answer