Two call options and two put options on a stock have the same expiration date and...

Two call options and two put options on a stock have the same expiration date and two strike prices of $187.5 (K1) and $262.5 (K2). The market prices of the call options are $90.5 (c1) and $13.88 (c2), and the market prices of the put options are $2.1 (p1) and $77.5 (p2), respectively.

(a) Explain how a long strangle can be created.

(b) Construct a profit (loss) table for the long strangle strategy at expiration of the options.

(d) For what range of stock prices would the strangle lead to a loss? What is the maximum loss?

(e) For what range of stock prices would the strangle lead to a profit?

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jeff jeffy answered 1 year ago

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