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Straddles and strangles

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You are planning to trade on the fortunes of a biotech firm that has a drug patent pending FDA approval. If the patent is approved, the stock price is expected to go up sharply. If it is not approved the stock will go down sharply. In your view, it is unlikely to move more than 20% in either direction. Describe a portfolio combining straddles and strangles that takes advantage of each view.

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This solution is comprised of a detailed explanation of straddles and strangles within the context of a portfolio.

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Straddle is an option strategy that involves buying a call option and a put option with same strike price and expiration date whereas ...

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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