Question: A strangle is a position that is long both a call and a put with the put having a lower strike price than the call.

A strangle is a position that is long both a call and a put with the put having a lower strike price than the call. Consider such a position with the put having a strike price of $48 and the call having a strike price of $52. The premium for the call is $1.50 and the premium for the put is $.50. Create a table and graph the overall payoff and net profit of this position as function of S_T, the stock price at maturity. Vary S_T from $40 to $60 in increments of $2.

How might your view about S_T be different from a view that would cause you to take the straddle in the previous problem? To answer this question, assume again that the current stock price is $50.

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