Asked by Camri Baldwin on Jun 02, 2024
Verified
You buy one Loews June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3. Your strategy is called
A) a short straddle.
B) a long straddle.
C) a horizontal straddle.
D) a covered call.
E) None of the options are correct.
Call Premium
The additional amount that the price of a call option exceeds its intrinsic value, often influenced by time remaining until expiration and volatility.
Put Premium
The price that an investor pays for the right but not the obligation to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.
Long Straddle
An options trading strategy that involves purchasing both a call and a put option on the same asset with the same expiration date and strike price, betting on volatility.
- Distinguish between various option trading strategies and their intended outcomes.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
B
Explanation :
Buying both a call and a put option at the same strike price and expiration date is known as a long straddle strategy. This approach is used when an investor expects a significant price movement but is unsure of the direction.
Learning Objectives
- Distinguish between various option trading strategies and their intended outcomes.