ATMAL Corp. is selling at RM8.00 per stock. The stock had risen following rumours of takeover....

 

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ATMAL Corp. is selling at RM8.00 per stock. The stock had risen following rumours of takeover. You do not own any stock and realise that it is a potentially volatile situation. At-the-money, RM8.00 calls and puts are being quoted at RM0.15. How can you profit using options? ATMAL Corp. is selling at RM8.00 per stock. The stock had risen following rumours of takeover. You do not own any stock and realise that it is a potentially volatile situation. At-the-money, RM8.00 calls and puts are being quoted at RM0.15. How can you profit using options?

Answer rating: 100% (QA)

To profit using options in this scenario you can employ a strategy known as a long straddle In a long straddle you simultaneously purchase a call opti... View the full answer