Buying a put and a call at the same exercise price on the same underlying stock is a _______.
A) covered call
B) protective put
C) spread
D) straddle
E) strap

Question

Quizplus · Accepted Answer

Buying a put and a call with the same exercise price is known as a straddle. This can be used by investors to profit from a stock's movement in either direction. If the stock moves significantly in one direction, the investor can sell the corresponding option to lock in profits while letting the other option expire. Alternatively, if the stock doesn't move much, both options will likely expire worthless, resulting in a loss.

Buying a Put and a Call at the Same Exercise