You want to use an investment strategy by selling a call option and a put option. Answer the next three questions using the following information. Sell a call option with an exercise price of $1.54 for a premium of $0.03. Sell a put option with an exercise price of $1.54 for a premium of $0.03.
A. this type of strategy is called a:
a. long butterfly b. short butterfly c. long straddle d. short straddle
B.this strategy would be profitable when the price of underlying currency is expected to?
a. this strategy will provide a positive profit for any price changes. b. be stable c. dramatically fall d. dramatically rise
Sell a call option with an exercise price of $1.54 for a premium of $0.03. Sell a put option with an exercise price of $1.54 for a premium of $0.03.
A. this type of strategy is called a short straddle.
In a short straddle we sell a call and a put at the same strike price and same expiry.
A long butterfly and a short butterfly involves only call options of three different strike prices.
A long straddle involves buying of a call and put for the same expiry at the same strike price.
B. This strategy would be profitable when the price of underlying currency is expected to be stable.
The maximum profit of a short straddle is when the stock doesn't move at all and expires at the strike price.
If the stock price either increase or decrease dramatically, then short straddle would result in a loss.
Short straddle will not give profit for any price change.
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