ADMS 1000 Lecture Notes - Lecture 26: Straddle, Call Option

• School: York University
• Department: Administrative Studies
• Course: ADMS 1000
• Professor: Alan Shapiro

Document Summary

To construct a long straddle, the buyer would purchase both a euro call and a euro put option, paying $. 03 $. 02 $. 05 per unit. The maximum loss for the long straddle in the example occurs at a euro value at option expiration equal to the strike price, when both options are at the money. At that point, the straddle buyer would lose both option premiums. The maximum loss for the straddle buyer is thus equal to $. 05 $. 03 $. 02. The buyer would purchase both a euro call and a euro put option, paying $. 03 $. 02 . If the value of the euro at option expiration is above the strike price of . 05, the call option is in the money, but the put option is out of the money. Conversely, if the value of the euro at option expiration is below . 05, the put option is in the money, but the call option is out of the money.