You believe that an important court decision regarding a company is about to be announced. You are unsure of the exact decision, but you feel the stock price will increase dramatically if the decision is in favor of the company or decline dramatically if the decision does not favor the company. The option strategy you should undertake is a:

Question

Quizplus · Accepted Answer

A straddle involves buying a call and put option on the same stock with the same strike price and expiration date. This strategy is used when an investor expects a stock to move significantly but is unsure of the direction. Since the scenario describes a situation where the stock price could move dramatically in either direction based on a court decision, a straddle is the appropriate strategy to potentially profit from large price movements regardless of the direction.

You Believe That an Important Court Decision Regarding a Company