What is the statistically fair value of the strangle

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Underlying trading at $100, and $20 annualized implied volatility. You think IV is too low and decide to buy a 90-110 strangle with 3 months to expiration (DTE=63).

(Hint: a strangle is a combination of OTM PUT and OTM CALL.)

Assume interest rate of zero and normal distribution of prices.

You think $20 annual vol is too low. You believe a fair annual vol should be $40. What is the statistically fair value of the strangle at $40 vol?

Reference no: EM131524999

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