Question

Suppose you expect the stock price to move signifificantly next month, but you are not sure of the direction of

the movement, which of the following option trading strategies you may want to implement? Please select

ALL appropriate trading strategies. No partial points will be given for this question.

A. Protective Put

B. Covered call

C. Bull spreads

D. Bear spreads

E. Straddle

F. Strangle

Answer 1

E STRADDLE

F STRANGLE

STRADDLE -A  straddle options strategy occurs when an investor simultaneously purchases a call and put option on the same underlying asset with the same strike price and expiration date. An investor will often use this strategy when they believe the price of the underlying asset will move significantly out of a specific range, but they are unsure of which direction the move will take.

STRANGLE -In a strangle options strategy, the investor purchases an out-of-the-money call option and an out-of-the-money put option simultaneously on the same underlying asset with the same expiration date. An investor who uses this strategy believes the underlying asset's price will experience a very large movement but is unsure of which direction the move will take.