The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
-What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement?
A) Sell a call
B) Purchase a put
C) Sell a straddle
D) Buy a straddle

Question

Quizplus · Accepted Answer

Selling a straddle involves selling both a call and a put option with the same strike price and expiration date. If the stock price remains stable, as you expect, both options will expire worthless, allowing you to keep the premiums collected from selling them.

The Common Stock of the Avalon Corporation Has Been Trading