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1.   You want to construct a euro straddle. A call option on euros with an exercise price of 1.10 USD has a

premium of 0.025 USD per unit. A euro put option has a premium of 0.017 USD per unit for the same exercise price.  


If you construct a long euro straddle, what is your net profit per unit if the future spot rate is 1) 0.90 USD, 2) 1.05 USD, 3) 1.50 USD, and 4) 2.00 USD


o  What is the break-even points of the long straddle? Would this change if it was a short straddle?

Top Answer

Net profit per unit if future spot rate is: 1)When spot rate is 0.90 USD then there is profit of... View the full answer

1.png

A
B
C
D
Value of Euro at Option Expiration
2
Own a call
Own a put Net profit
3 0.90 USD
-0.025
0.109
0.084
4
0.95 USD
-0.025
0.067
0.042
5 1.05 USD
-0.025
0.025
0
6 1.10 USD
-0.025
-0.017
-0.042
7...

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