The common stock of the Avalon Corporate has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. You sell a straddle that includes a 3-month put option with an exercise price of $40 and a call with the same expiration date and exercise price. The put sells for $3 and the call sells for $4.
1) What is the income from selling the straddle?
2) What is the profit if the stock price is $36 at expiration?
3) What is the profit if the stock price is $45 at expiration?
4) What is the profit if the stock price remains $40 at expiration?