Question: Suppose you do a one-year straddle strategy using a Call and a Put. The strike price is $100. The underlying is the stock of company

Suppose you do a one-year straddle strategy using a Call and a Put. The strike price is $100. The underlying is the stock of company ABC. Assume the prices the stock can take next year are either $80 or $150. Both states of nature can reveal with 50% probability.

(a) What are the payoff you receive in the two possible scenarios stated before? Explain what is the option you exercise in every case.

(b) What is the expected payoff if you paid $15 for the put and $25 for the call?

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