Jeff believes that Microsoft stock will move significantly ineither direction with the release of the next version of Windows.Jeff wants to design a strangle strategy to take advantage of thepossible move in the stock price. Jeff knows that Microsoft’s calland put prices are $1 and $1.50 with strike prices of $26 and $24,respectively. The options will expire in three months and the stockis currently trading at $25.
a. Should Jeff embark on a long or short strangle strategy?
b. What is the maximum possible loss per share, gain per share,and breakeven price at the expiration of the options?
c. The delta of this call option is 0.50. What is the change inthe call option price if Microsoft moves up to $28?
Please be more specific.
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