Suppose you do a one-year straddle strategy using a Call and a Put. The strike price...

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Finance

Suppose you do a one-year straddle strategy using a Call and aPut. The strike price is $100. The underlying is the stock ofcompany ABC. Assume the prices the stock can take next year areeither $80 or $150. Both states of nature can reveal with 50%probability.
(a) What are the payo? you receive in the two possible scenariosstated before? Explain what is the option you exercise in everycase. (b) What is the expected payo? if you paid $15 for the putand $25 for the call?

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Suppose you do a one-year straddle strategy using a Call and aPut. The strike price is $100. The underlying is the stock ofcompany ABC. Assume the prices the stock can take next year areeither $80 or $150. Both states of nature can reveal with 50%probability.(a) What are the payo? you receive in the two possible scenariosstated before? Explain what is the option you exercise in everycase. (b) What is the expected payo? if you paid $15 for the putand $25 for the call?