Question

In terms of bullish spread strategy, what is the expectation of the investor who buys that strategy?

-Underlying stock price to go down

- Underlying stock price to go up

- Volatility goes down

-Volatility goes up

-None of above

In terms of straddle strategy, what is the expectation of the investor who buys that strategy?

- Underlying stock price to go down

-Underlying stock price to go up

-Volatility goes down

-Volatility goes up

-None of above

Which one of the following strategy offers the highest possible profit?

-Covered call

-Protective put

-Selling a call

-Straddle

- Buying a put

Answer 1

1 and 2 part is in image.

Ans 3 is Protective put strategy offers the highest possible profit. As it creates a limit for loss but no limit for potential profit. Buying a protective put, gives owner a right to sell an underlying stock at a strike price below the stock.

Under this strategy, put option is purchased against a long stock position.