Question

Now consider a strangle using the same call with a strike price of $100 and a different put with a strike price of $95. Both have the same expiration date. The call costs $5, while the put costs $2 (cheaper than the previous put with the strike price of $100). For what range of stock prices would the strangle lead to a loss

Answer 1

[89, 106]

Step-by-step explanation:

Call Strike Price (Xc) = 100

Put Strike price (Xp) = 95

c = 5, p = 2

In case of a long strangle, which means 1 long call and 1 long put.

Payoff at expiration = Max (0, ST-100) + Max (0, 95-ST) - 7

Strangle would lead to a loss if ST falls in the range between 89 and 106.