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What range of stock prices would the strategy lead

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Reference no: EM133002498

An investor is considering the following option strategy: Short 1 ABC 42 Call with a premium of $3.50 and Short 1 ABC 38 Put with a premium of $2.50

Problem a) Name the strategy and draw a diagram showing the pay-off at maturity

Problem b) For what range of stock prices would this strategy lead to a profit/loss? Calculate max. profit/loss

Problem c) Under what assumptions would an investor employ this strategy. Will it help to manage risk?

Reference no: EM133002498

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