An investor can create a straddle position by doing the following:
A)buy a stock and write a call option.
B)buy a stock and buy a call option.
C)buy a stock and buy a put option.
D)buy a call option and a put option with the same exercise price.

Question

Quizplus · Accepted Answer

A straddle position involves buying a call option and a put option with the same exercise price. This allows the investor to profit from price movements in either direction, as the call option will be profitable if the stock price rises and the put option will be profitable if the stock price falls. Buying a stock and writing a call option (A) is known as a covered call strategy and does not involve buying a put option, while buying a stock and buying a call option (B) is known as a long call strategy and does not involve buying a put option. Buying a stock and buying a put option (C) is known as a protective put strategy and does not involve buying a call option.

An Investor Can Create a Straddle Position by Doing the Following