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Postby » Fri Aug 16, 2013 9:18 am

Stock price 20, volatility=20%,RF=4%. Assume ATM options with one yr maturity.

How to calculate initial cost and MAX potential loss of the straddle.

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Postby vighnesh.mehta » Wed Sep 04, 2013 3:08 am

Straddle involves buying a call and a put option with the same strike price and expiration. The cost involves is paying the premium for these options. The strategy is profitable when there is a expectation of a large moves in the stock price assuming not reflected in the option premium.
The max loss to the investor is the option premium paid for both the options. This happens when the stock expires at the strike price.

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