Consider a short straddle constructed from options on 3M stock which have an expiration date of January 17, 2020. The following table displays the only possible prices of 3M stock on January 17, as well as the payoffs accruing to someone who holds a short straddle on the stock:

Stock price$80$90$100$110$120

Gain from short straddle-$10$0$10$0-$10

a A short straddle is created using two options. For each option in the short straddle above, indicate whether it is a put or a call, whether it is bought or sold, and what

its strike price is. What is the maximum possible loss on this short straddle? What is the maximum possible loss on a real short straddle?

b What is the sum of the premiums of the options you identified in part (a)? Explain.

c Why would someone enter into a short straddle?Explain carefully.