Question

Consider the following position:

Sell 2 GGG Oct 90 calls at 6.8

Sell 2 GGG Oct 90 puts at 4.8

11. What type of position is this?

12. Is this generally considered bullish, bearish, or neutral?

13. If the stock price is 92, what is the net investment or margin required?

14. What is the maximum profit or gain this can make?

15. What is the gain or loss if GGG is 103.4 at January expiration?

Answer 1

11) This position is two short straddles where call and put are sold at same strike price.

12)This is when a neutral trend is expected with a low volatility. The\ trader thinks that the underlying securities will experience low volatility in the near term.

13) There is no investment required as there is sale of option which shall yield premium of 2*(6.8+4.8)=$23.20

At 92 one has to pay $2 payoff for call option, put option shall expire worthless.
Therefore total payoff =$4
Substracting from $23.20-$4=$19.20 profit

14) Maximum profit is total premium received =$23.20. It is when the options shall expire worthless.

15)
At 103.40
Loss on call option = 103.4-90=13.40
For two times=26.80
Profit=23.20-26.80=-3.60
Therefore there is a loss of $3.60