Explanation:
The question is testing the use of the short straddle trading strategy, a trading strategy that involves selling a call and a put option with the same strike price and time to maturity.
$50$4 + $6 = $10$50 + $10 = $60$50 - $10 = $40Therefore, for a loss to be incurred, the asset price at maturity should be either above $60 or below $40, meaning the asset price must move by more than $10.
Q.4625 The strike price of a three-month call and a three-month put option with the same time to maturity is $50. The cost of the call option is $4, whereas the cost of the put option is $6. Using a short straddle strategy of trading, by how much should the asset price move in order to incur a loss?
A
4
B
6
C
2
D
10
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