A trader predicts that there will be limited price movements of USD/₤ in the near future but does not know which directi
Posted: Sat Nov 27, 2021 5:19 pm
A trader predicts that there will be limited price movements of
USD/₤ in the near future but does not know which direction the
price will move, so he decides to use the “short straddle
forex options trading strategy” to make money in the forex
market. The information for the call options and put options and
put available for him are given below:
• Call option and put option strike price = $1.68/₤
• Put option premium = $.020 per unit
• Call option premium = $.045 per unit
• One option contract represents ₤100,000
What is/are break-even point(s) (i.e., the exchange rate(s)) for
the straddle?
What is the point (i.e., the exchange rate) that the maximum
profit occurs?
What are ranges of the exchange rate movement that guarantee
profits? And what is the maximum possible loss?
USD/₤ in the near future but does not know which direction the
price will move, so he decides to use the “short straddle
forex options trading strategy” to make money in the forex
market. The information for the call options and put options and
put available for him are given below:
• Call option and put option strike price = $1.68/₤
• Put option premium = $.020 per unit
• Call option premium = $.045 per unit
• One option contract represents ₤100,000
What is/are break-even point(s) (i.e., the exchange rate(s)) for
the straddle?
What is the point (i.e., the exchange rate) that the maximum
profit occurs?
What are ranges of the exchange rate movement that guarantee
profits? And what is the maximum possible loss?