Consider a Long Position in a 100-Strike Straddle Added to a Short

question 14

Multiple Choice

Consider a long position in a 100-strike straddle added to a short position in a 90/110-strike strangle.The underlying is a stock index.This is equivalent to:

• A)A stock index contract that pays the absolute return on the index up to \(\pm 10 \%\)
• And then pays nothing if the return is outside the range
• \(\pm 10 \%\)
• )
• B)A long position in a 90-strike straddle plus a long position in a 110-strike straddle plus a short position in a 100-strike straddle.
• C)A short position in a 90-100-110-strike butterfly call spread plus a zero-coupon bond of face value 10.
• D)A long position in a 90-100-110-strike butterfly call spread plus a long put at 90 and long call at 110.

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Definitions:

Means of Payment

Various methods through which debts can be paid, ranging from physical currency to electronic transfers of funds.

Precious Metals

Metals that are rare and have high economic value, such as gold, silver, and platinum.

Currency

The system of money in general use in a particular country, vital for financial transactions and economic activities.

M1

A category of the money supply that includes all physical money like coins and currency, as well as demand deposits, checking accounts, and negotiable order of withdrawal (NOW) accounts.