Question

You are going to apply a very popular investment strategy with options called a straddle. Basically, you buy a call option and a put option for the same stock and the same maturity that are as close as possible to being at the money (stock and strike price very close to each other). First, use the information given in the spreadsheet to create the payoffs in dollars. The payoff diagram will fill in as you put in payoffs. Second, go out and choose a stock of your choice that has options traded on it and replicate a straddle strategy with real data. Yahoo Finance has easily accessible option data for stocks and can be viewed in straddle view. What conclusions can you draw from this type of strategy in terms of upside and downside as well as when do you gain and when do you lose?

Can you provide the completed table as well as the second part?

Given Information:
Stock Price	25.27
Strike Price	25.00
Call Price	1.40
Put Price	0.90
Calculations:
Stock Price	Call Payoff	Put Payoff	Total Payoff
20
21
22
23
24
25
26
27
28
29
30

Answer 1

Long call option pay off = MAX(0,Spot - Strike) - Call Premium

Long put option pay off = MAX(0,Strike - Spot) - Put Premium

Total payoff = Long call option pay off + Long put option pay off

Below given is the solved table:-

Pay off diagram is something like the following:-

So it can be seen that this Straddle strategy is a non-directional strategy as it is not expected that the market will go in any particular direction but rather this strategy help to gain from the market high volatility. So as the market is highly volatile it is probable that the market will go either up or down but whatever may the direction of the market the investor will gain from the volatility. but is the market remains stable, or intact in its position than there would be loss of 2.3$ per underlying asset which is the sum of the premium paid but gains could be unlimited.