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Question 16 A call option on the ASX 200 index with a strike of 5000...

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Question 16 A call option on the ASX 200 index with a strike of 5000 costs 200 (in index points). A put option on the index with strike of 5000 costs 150 (in index points). An investor wishes to buy a straddle using these options. a) Is the investor betting on the direction of the ASX index or its volatility? b) Explain how to create a straddle from these two options. Construct the net payoff table (1 mark) and draw the net payoff diagram for the straddle. a c) Assume the investor also combines the long straddle in part (b) with a long position on (4 marks) ro the SPI futures. What is the investor now betting on? SO (2 marks) 2= 7 marks) (1 4

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