What is the maximum possible gain the writer of a strangle

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Reference no: EM13936133

Currency strangles. The following information is currently available for Canadian dollar (C$) options (see Appendix B in this chapter):

l Put option exercise price ¼ £0.45.

l Put option premium ¼ £0.014 per unit.

l Call option exercise price ¼ £0.46.

l Call option premium ¼ £0.01 per unit.

l One option contract represents C$50 000

a. What is the maximum possible loss the purchaser of a strangle can achieve using these options?

b. What is the maximum possible gain the writer of a strangle can incur?

c. Locate the breakeven point(s) of the strangle.

Reference no: EM13936133

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