I feel like I am missing something very obvious, but the solution to Question 5.2 of the study material calls the following strategy similar to a reverse straddle: Buy a 550p call, buy a 600p call, buy a 550p put, and buy a 600p, at some given prices. Isn't this similar to a straddle? Rather than a reverse straddle?
Hi mystery128, The position, from what you describe, is not similar to either. The position is similar to a long strangle. It looks to be synthetically equivalent to a x2 lot 550 / 600 strangle position (i.e. long 550 put and long 600 calls). The payoff between 550 - 600 is flat [the 600 put cancels out with the 550 call strike]. The payoff is unrestricted outside of this range.
Hi, I am not sure how that "reverse" crept in there. It must have been there for years without anyone mentioning as it was in SA6 prior to SA7. But yes, its a strangle rather than a reverse strangle. In SA7 there is no need to name the strategies, but in SA6 there were some strategies that were named in the core reading, and strangle was one of them. A straddle is more of a V shape. Thanks for pointing it out - I will try to get it changed in the next version of the notes.
Sorry my bad. The study material refers to it as a reverse strangle rather than a reverse straddle. And thank you for the quick response!
