The FTSE index is at 5,100.You are short a straddle on the FTSE 100 struck at 5,100 and long a 5,000/5,200 strangle.If volatility were to increase,

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Quizplus · Accepted Answer

If volatility were to increase, the value of the straddle (which is short) would increase due to higher option premiums, resulting in losses. On the other hand, the value of the strangle (which is long) would increase due to wider breakeven points, resulting in gains. However, since the straddle has a higher gamma (sensitivity to changes in the underlying asset's price) than the strangle, the overall effect would be negative, and the value of the position would decrease. Therefore, the correct answer is C.

The FTSE Index Is at 5,100