ADMS 1000 Lecture Notes - Lecture 25: Straddle, Put Option, Call Option

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ADMS 1000 Full Course Notes
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ADMS 1000 Full Course Notes
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The call and the put option have the same expiration date and striking price. The worksheet can be set up to show each individual option position and the net position. The worksheet will also help in constructing a contingency graph for the combination. Put a(cid:374)d (cid:272)all optio(cid:374)s are a(cid:448)aila(cid:271)le for euros (cid:894) (cid:895) (cid:449)ith the follo(cid:449)i(cid:374)g i(cid:374)for(cid:373)atio(cid:374) Call option premium on euro $. 03 per unit. Put option premium on euro $. 02 per unit. The put options have the same expiration date and striking price. When constructing a long straddle, the buyer purchases both the right to buy the foreign currency and the right to sell the foreign currency. Since the call option will become profitable if the foreign currency appreciates, and the put option will become profitable if the foreign currency depreciates, a long straddle becomes profitable when the foreign currency either appreciates or depreciates.

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