You buy one Xerox 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 these.

Question

Quizplus · Accepted Answer

A long straddle involves buying both a call and put option at the same strike price and expiration date, as in this scenario. The goal is to profit from a significant move in either direction, making this a speculative strategy. Choice A, a short straddle, involves selling both a call and put option and is a higher risk strategy as the seller is exposed to unlimited losses if the stock moves significantly in one direction. Choice C, a horizontal straddle, involves buying or selling options with the same strike price but different expiration dates. Choice D, a covered call, involves owning the underlying stock and selling a call option against it for additional income. Finally, choice E is not relevant as a choice was made in the question.

You Buy One Xerox June 60 Call Contract and One