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Cost an investor to buy a long strangle

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Reference no: EM131152531

Consider a "long strangle" constructed from options which have an expiration date of September 15, 2016 (the third Friday in September). The following table displays the possible prices of Boeing stock on September 15, as well as the payoffs accruing to someone who holds a long strangle on Boeing stock:

Probability

0.2

0.3

0.2

0.2

0.1

Stock price

$80

$90

$100

$110

$120

Gain from long strangle

$15

$5

$0

$10

$20

What will it cost an investor to buy a long strangle today?

Reference no: EM131152531

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