Question: Construct a table showing the payoff from a long strangle when put options with strike prices $10 and call options with a strike price of

  1. Construct a table showing the payoff from a long strangle when put options with strike prices $10 and call options with a strike price of $15 are used. (4 marks)
  2. Describe a situation where you would use a long strangle option spread. (1 mark)
  3. Describe a different option strategy that could be used for the same purpose, outlining a comparative advantage and disadvantage of this strategy compared with the long strangle. (2 marks)
  4. Outline the theoretical circumstances under which you would make losses from this strategy. Outline the maximum theoretical profits and losses that could be made. (2 marks)
  5. Discuss the role that leverage has plays in option strategies. (1 mark)

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