Anna bought a $40 April call and a $40 April put on the same underlying stock.This strategy is referred to as which one of the following?
A)bull spread
B)bear spread
C)parity play
D)short straddle
E)long straddle

Question

Quizplus · Accepted Answer

Anna's strategy of buying both a call and a put at the same strike price and expiration is known as a long straddle. This is because she is hoping that the stock price will move significantly in either direction, allowing her to profit from either the call or the put. A bull spread, on the other hand, involves buying a call at a lower strike price and selling a call at a higher strike price, whereas a bear spread involves buying a put at a higher strike price and selling a put at a lower strike price. A parity play is a strategy used in the options market to profit from mispricings between call and put options with the same strike price and expiration date, and a short straddle involves selling both a call and a put at the same strike price and expiration date.

Anna Bought a $40 April Call and a $40 April