Why is a straddle position considered a speculation on the asset's volatility?
31. Why is a straddle position considered a speculation on the asset's volatility?
32. To plant and harvest 20,000 bushels of corn, Farmer Jayne incurs fixed and variable costs totaling $33,000. The current spot price of corn is $1.80 per bushel. What is the profit or loss if the spot price is $1.90 per bushel when she harvests and sells her corn?
(a) $3,000 gain
(b) $3,000 loss
(c) $5,000 gain
(d) $5,000 loss
33. When selecting among various put options with different strike prices, in order to hedge a long asset position, which of the following statements is true?
(a) Higher strike puts cost more and provide higher floors
(b) Higher strike puts cost less and provide higher floors
(c) Lower strike puts cost more and provide higher floors
(d) Lower strike puts cost less and provide higher floors
Hint
31.straddle position is considered as speculation on the volatility of the asset because a speculative trader who is wishing to obtain high gains from the volatile moment of the acid can benefit from the straddle strategy because straddle consists of buying up put and a call option at the same strike price and selling a call at put at another same strike price. Long position in the straddle gives ...
straddle position is considered as speculation on the volatility of the asset because a speculative trader who is wishing to obtain high gains from the volatile moment of the acid can benefit from the straddle strategy because straddle consists of buying up put and a call option at the same strike price and selling a call at put at another same strike price. Long position in the straddle gives the benefit when the volatility of the stock is high and short position in the straddle gives Drop It to the investor when the volatility in the market is low. Therefore straddle position is considered as a speculation on the volatility of the Asset
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