Question: Hedging with Straddles versus Strangles (See the chapter appendix.) Refer to the previous problem. Assume that Brooks believes the cost of a long straddle is

Hedging with Straddles versus Strangles (See the chapter appendix.) Refer to the previous problem.

Assume that Brooks believes the cost of a long straddle is too high. However, call options with an exercise price of $.105 and a premium of $.002 and put options with an exercise price of $.09 and a premium of $.001 are also available on Moroccan dirham. Describe how Brooks could use a long strangle to hedge its possible dirham positions. What is the tradeoff involved in using a long strangle versus a long straddle to hedge the positions?

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