### What is the statistically fair value of the strangle

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##### Reference no: EM131524999

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?

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