Compare and contrast a strangle and a straddle?? Make sure to discuss the payoff,, profit and...

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Compare and contrast a strangle and a straddle?? Make sure todiscuss the payoff,, profit and cost//ppremium of the strategiestoday regarding both strategies.. If you want to include in yourexplanation a graphical representation of the payouts and//oorprofits feel free to do so but you still need to discus s thegraphs and not similarities and differences .

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StraddlesA straddle is volatility strategy and is used when the stockprice index is expected to show large movements A straddleinvolves a call and a put option with the same exercise price andthe same expiration dateThe straddle buyer buys a call and a put option and the sellersells a call and a put option at the same exercise price and thesame expiration date The maximum loss associated with the longstraddle position is the cost of the two options the premium paidfor buying the options but the profit potential is unlimited whenthe prices of the underlying asset rise or fall significantly Withstraddles the investor is direction neutral and he looks out forthe stock index to break out significantly in eitherdirectionThe payoff of a straddle buyer is shown belowExampleExpiration Day Cash Flows for a Long StraddleBuy a March 310call Rs 21 pershareBuy a March 310put Rs 42 per shareInitial investment cash flowCF0 Rs 63 pershareThe expiration date cash flows and the net cash flows are See Answer

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