Question

For each of the following option positions, what is your payoff on your portfolio if the stock price at maturity is 205?

A) Long strangle where the call strike is 200 and the put strike is 190

B) short risk reversal where the call strike is 200 and the put strike is 190

Answer #1

A)

Long Strangle is an option strategy in which investor Buy one Call with higher strike price and Buy one Put with lower strike price.

In given case,

Call strike price (Xc) = $200

Put Strike price (Xp) = $190

Stock price on maturity (S) = $205

Thus, Payoff(P) of this Long strangle would be:

putting the values,

B)

Short Risk reversal is an option strategy in which investor Buy one Put and Sell one Call.

In given case,

Call strike price (Xc) = $200

Put Strike price (Xp) = $190

Stock price on maturity (S) = $205

Thus, Payoff(P) of this Short risk reversal would be:

You purchased the following portfolio a year ago: long one stock
of London XYZ plc for 25.35GBP, short one call option on the stock
with a strike price of 27 GBP, a maturity of one year with a price
of 3 GBP and long one put option on the stock with a strike price
of 23 GPB, a maturity of one year with a price of 3 GBP. The price
of London XYZ plc is 21.24 GBP today. Calculate the...

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time?
Selected Answer $-17.30 (wrong)
a) $-14.50
b) $17.30
c) $-17.30
d) $2.80
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Ralph Lauren is a portfolio manager with Point72 Investments, a
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(a) above the strike price.
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(d) at the strike.

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