Question
A call option with a strike price of $$\$ 50$$ costs $$\$ 2$$. A put option with a strike price of $$\$ 45$$ costs $$\$ 3$$. Explain how a strangle can be created from these two options. What is the pattern of profits from the strangle?
Step 1
In this case, we have a call option with a strike price of $50 and a put option with a strike price of $45. To create the strangle, we would buy both the call option and the put option. The cost of the call option is $2 and the cost of the put option is $3. So, Show more…
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