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# Option Strategies Handout NOTE: I created the drawings below a few years ago in another program and pasted the drawings as pictures into this word...

For a Straddle option strategy, Long \$80 Call at \$6, Long \$80 Put at \$4.
Q:
1. calculate the initial cash flow
2. produce a table showing the value a profit at expiration for each relevant range of the underlying stock price
3. the reange over which the strategy is profitable
4. a graph of the position
Option Strategies Handout NOTE: I created the drawings below a few years ago in another program and pasted the drawings as pictures into this word document. Therefore it is not possible to change the “X’s” to “K’s” in the drawings, so I will not do it in the tables either. 1. Synthetic Long Call Long Stock (at X), Long X Put CF 0 = – X – p S T V T = max{X – S T , 0} + S T Π T = V T + CF 0 S T ≥ X 0 + S T = S T S T – X – p X > S T S T – X – S T = X X – X – p = – p Profitable if S T > X + p 1
2. Synthetic Short Call Short Stock (at X), Short X Put CF 0 = X + p S T V T = – max{X – S T , 0} – S T Π T = V T + CF 0 S T ≥ X 0 – S T = – S T – S T + (X + p) = X – S T + p X > S T S T – X – S T = – X – X + (X + p) = p Profitable if S T < X + p 2
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