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Draw a Diagram of the Payoff at Expiry of a Long

question 49

Essay

Draw a diagram of the payoff at expiry of a long straddle.Assume a strike price of $21 and premiums of $0.55 and $0.45 for the call and put options, respectively.Under what circumstances do you think that it is appropriate to implement this strategy?


Definitions:

Common Region

A principle of perceptual organization where elements located within the same bounded space are perceived as being grouped together.

Closure

The psychological phenomenon of seeking a sense of resolution or completeness in perceptual or cognitive processes.

Contiguity

A Gestalt principle of perception; the tendency to perceive two things that happen close together in time as being related.

Continuity

A Gestalt principle of perception; the tendency to perceive things as simply as possible with a continuous pattern rather than with a complex, broken-up pattern.

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