The profitable range of a short strangle
You sell a strangle on a stock: you write a $90-strike put for a $3 premium and write a $110-strike call for a $4 premium (same expiry, one share each), collecting both premiums up front. The position is profitable only while the stock finishes inside some price range at expiry. How wide is that profitable range (the distance in dollars between the lower and upper break-even prices)?
Show hints (2)+
- Total credit is ; find where net profit hits zero below $90 and above $110 separately.
- Lower break-even , upper ; the width is their difference.
Answer
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