Question

XYZ stock is trading at $100 (and pays no dividends). The effective 3-month interest rate r = 1% for all the following questions. Also, I highly recommend you use a spreadsheet, it’s so much easier! You can refer to the spreadsheet posted along with the assignment, but be sure you build your own (and that you can sketch the answers with pen and paper like on the midterm/final.)

3 month options on XYZ are trading at the following prices (no bid/ask spread!):

Strike Price	Call Price	Put Price
95	7.55	1.60
100	4.49	3.49
105	2.39	6.3

Construct profit and payoff diagrams for the following:

a) Long a 105 strike straddle.

b) Short a 95 strike straddle.

c) Combine a) and b) in a single portfolio.

Answer 1

CH take long cau a long put @ 105 Do 16.31 IS Pocmium Sporteloricou lanpur fapot. -8.6970 26.31 -2.69 80 : -8.69_190 6.31 -8.69 s.100 -3.69 -8.69_ 105 -8.69 - 8-69 110 73.61 -8-69 120 6:31 27 - 24- 70 80 90 100 W

take Shost cau & short put @ 95 ་ -25 Neto - 15 35. 6.6s Poemium + g-$ ༧ ， +4- i +4, tS Spot acute_Shost cal_shot put #༡- ༼༡ 1:@ # པ པ ག ག ན པ f5 [5 /o ( } ༧ ༡.༡ + ༣， } + 1. {5 -t 3:1S ད 5 - (༡. བདུ,9་ ༤)S 26 ཅ |} jl530 [2] ཆེ ཨེ ཙ > ན

coa &b combine in one pootfolio Spot Poice 90 100 Net(A) Net CB -15.85 26-3) - 5.8516. 31 4.15 631 4.15 -3.69 -0.85 -8.69 -5.25 -3.69 --1585 631 N CE Pamoff 10.16 1 0.46 P. 10.46 0.46 -9.54 -9.54 .-9.54 105 fo 120 4020 90 100 110 120 NA

I hope my efforts will be fruitful to you...?