Question

A trader sells a strangle by selling a 6-month European call option with a strike price of $$\$ 50$$ for $$\$ 3$$ and selling a 6-month European put option with a strike price of $$\$ 40$$ for $$\$ 4$$. For what range of prices of the underlying asset in 6 months does the trader make a profit? 

   A trader sells a strangle by selling a 6-month European call option with a strike price of $$\$ 50$$ for $$\$ 3$$ and selling a 6-month European put option with a strike price of $$\$ 40$$ for $$\$ 4$$. For what range of prices of the underlying asset in 6 months does the trader make a profit?
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 12, Problem 22 ↓

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Step 1

For the call option, the trader receives a premium of $3 when selling the option. If the price of the underlying asset at expiration is above the strike price of $50, the call option will expire worthless and the trader keeps the premium of $3. However, if the  Show more…

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A trader sells a strangle by selling a 6-month European call option with a strike price of $$\$ 50$$ for $$\$ 3$$ and selling a 6-month European put option with a strike price of $$\$ 40$$ for $$\$ 4$$. For what range of prices of the underlying asset in 6 months does the trader make a profit?
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