When an investor purchases one put contract and one call contract on the same stock with the same exercise price and expiry date he or she has formed a:
A) strip.
B) straddle.
C) strap.
D) spread.

Question

Quizplus · Accepted Answer

A straddle is an investment strategy that involves purchasing a call option and a put option on the same stock with the same strike price and expiration date. This strategy is used when an investor believes a stock's price will move significantly but is unsure in which direction.

When an Investor Purchases One Put Contract and One Call