Evaluating an Option Strategy for Currency Hedge

XYZ Corporation is assessing its exposure to adverse movements in foreign exchange rates affecting its European sales. To hedge this risk, the company considers implementing an option strategy that allows it to benefit from a scenario where the Euro appreciates against the US Dollar, while at the same time limiting its downside risk if the Euro depreciates.

The CFO proposes a strategy involving buying Euro call options and simultaneously selling Euro put options. This strategy aims to generate additional cash flow while providing a hedge. However, the CFO is uncertain about the implications of this strategy under various scenarios of Euro movement.

As an investment advisor, you are asked to evaluate the proposed option strategy and provide guidance on its potential outcomes. Which statement best describes the implications of this hedging strategy?