Interview Question: Spread Thy Options

Sample Question #124 (finance – option trading)

There’re three parts to this question.

1) What’s the difference between a straddle and a strangle?

2) Draw the profit pattern (i.e., payoff chart) of a straddle.

3) Draw the profit pattern (i.e., payoff chart) of a strangle.

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One Response to Interview Question: Spread Thy Options

  1. Brett says:

    ANSWER
     
    1) In a straddle both the call and the put have the same strike. In a strangle, the call has a higher strike than the put. (Bonus question: why can’t the strangle have a higher put price than the call?)
     
    2) V pattern.
     
    3) U pattern.
     

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