Question

G) Consider buying a call and a put option, both with a strike price of $20 and the same expiration. Fill in the table for the payoffs of the straddle

Answer 1

A straddle strategy can be used to exploit the market condition in any direction where one call option and one put option of a stock with same strike price and same expiry date are purchased.

Total cost of straddle = Call price +Put price

Therefore loss is limited to the cost of straddle.

Now payoff table if strike price is $20, if stock price is below or at $20, call payoff will be zero and if stock price is above or at $20, put payoff will be zero.

Stock price	Call payoff	Put Payoff	Total Payoff (call payoff +put payoff)
$10	$0 (Its below $20)	$20 -$10 =$10	$10
$15	$0 (Its below $20)	$20 -$15 = $5	$5
$20	$0 (It’s at $20)	$0 (it’s at $20)	$0
$25	$25 -$20 =$5	$0 (its above $20)	$5
$30	$30 -$20 =$10	$0(its above $20)	$10