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You are considering an option strategy called a straddle. You will buy a call option...

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Accounting

You are considering an option strategy called a straddle. You will buy a call option with a strike 40 and a put option with a strike of 40 also.

Consider the following 3 scenarios for the price of the underlying asset at maturity:

  1. S(T) = $35
  2. S(T) = $40
  3. S(T) = $45

For each scenario, calculate the payoff for the call option, the payoff for the put option, and add those two to find the total payoff of the straddle option strategy.

  1. Scenario 1:
    1. Payoff for the call =
    2. Payoff for the put =
    3. Total payoff =
  2. Scenario 2:
    1. Payoff for the call =
    2. Payoff for the put =
    3. Total payoff =
  3. Scenario 3:
    1. Payoff for the call =
    2. Payoff for the put =
    3. Total payoff =

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