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(Solved): Suppose the DJIA stands at .24,900 You want to set up a long straddle by purchasing 100 calls and an ...



Suppose the DJIA stands at .24,900 You want to set up a long straddle by purchasing 100 calls and an equal number of puts on the? index, both of which expire in three months and have a strike of 249. The put price is listed at ?$4.30 and the call sells for ?$5.30. a. What will it cost you to set up the? straddle, and how much profit? (or loss) do you stand to make if the market falls by 800 points by the expiration dates on the? options? What if it goes up by 800 points by? expiration? What if it stays at24,900 ?? b. Repeat part a?, but this time assume that you set up a short straddle by ?selling/writing 100 Oct 249 puts and calls. c. What do you think of the use of option straddles as an investment? strategy? What are the? risks, and what are the? rewards?



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a. To set up the long straddle, it will cost you 100 * $4.30 + 100 * $5.30 = $<<1004.30+1005.30=860>>860. If the market falls by 800 points by the exp
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