Question

# For each of the following option positions, what is your payoff on your portfolio if the...

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

#### Homework Answers

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:

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