Put and Call options are available on Canadian dollars (C$) with the following information: Call option premium on Canadian dollar = $0.04 per unit
Put option premium on Canadian dollar = $0.02 per unit
Call option strike price = $0.70
Put option strike price = $0.70
One option contract represents C$50,000.
a) For spot rates of $ 0.5, $0.6, $0.7, $0.8, $0.9, determines the profit per unit and per contract for a long straddle strategy.
b) Construct contingency graph of the long straddle.
c) Explain why it is advantageous for a speculator to engage in a long straddle.