Question

Exhibit 14.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM

Consider the following information on put and call options for Citigroup

Strike Price	Put Price	Call Price
$32.50	$2.85	$1.65

Refer to Exhibit 16.4. Calculate the payoffs of a short straddle at a stock price at expiration of $20 and a stock price at expiration of $45.

a. $21.65, $34.15

b. $6.35, $18.85

c. $8, $8

d. $29.65, $42.15

e. -$8, -$8

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

C w ENG 07:38 31-07-2020 99+ 28 Х OE20 > . NV NW NX NY NZ OA OB ОС OD OE OF OG OH OJ 이 1 2 SHORT STRADDLE 3 4 STRIKE PRICE CALL PREMIUM PUT PREMIUM 5 32.5 2.85 1.65 6 7 NOW SHORT STRADDLE IMPLIES BOTH CALL AND PUT BEING SOLD 8 SO SELLER WILL RECEIVE PREMIUM AS INCOME TOTAL INCOME = 4.5 (2.85+ 1.65] 9 10 11 a PRICE ON EXPIRY = 20 12 13 14 AS PRICE ON EXPIRY IS 20, PAYOFF FOR CALL OPTION = 0 AS HOLDER OF CALL OPTION WILL NOT EXERCISE IT PAYOFF FOR PUT OPTION = PRICE ON EXPIRY - STRIKE PRICE = 20 -32.50 = -12.50 15 AS HOLDER OF PUT OPTION WILL EXERCISE IT 16 17 PROFIT = PREMIUM RECEIVED + PAYOFF PROFIT = 4.5+ (-12.50) = - 8 18 19 20 21 b PRICE ON EXPIRY = 45 22 23 AS PRICE ON EXPIRY IS 45, PAYOFF FOR CALL OPTION = STRIKE PRICE - PRICE ON EXPIRY = 32.50 -45= -12.50 AS HOLDER OF CALOPTION WILL EXERCISE IT OCF CASH FLOW STATW FCF ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET 24 NPV TAX HEDGING MONEY MAE ... +

C w ENG 07:38 31-07-2020 99+ 28 Х NY42 < . NV NW NX NY NZ OA OB OC OD OE OF OG OH Ol OJ 20 21 b PRICE ON EXPIRY = 45 AS PRICE ON EXPIRY IS 45, 22 23 PAYOFF FOR CALL OPTION = STRIKE PRICE - PRICE ON EXPIRY = 32.50 -45= -12.50 AS HOLDER OF CALL OPTION WILL EXERCISE IT 24 25 PAYOFF FOR PUT OPTION = 0 AS HOLDER OF PUT OPTION WILL NOT EXERCISE IT 26 27 PROFIT = PREMIUM RECEIVED + PAYOFF PROFIT = 4.5+ (-12.50) = - 8 28 ANS: e -8,-8 29 30 31 32 33 34 35 36 37 38 39 40 41 42 NPV OCF CASH FLOW STATW FCF ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET TAX HEDGING MONEY MAE ... + ...