Holding a put option and a call option on the same underlying asset,strike price,and maturity has payoffs equivalent to:
A) holding a stock today
B) holding a stock in the future
C) holding a call option
D) none of the above

Question

Quizplus · Accepted Answer

If an investor holds both a put option and a call option with the same strike price and maturity, those options will cancel each other out, resulting in no payoff equivalent to holding a stock or a call option. This strategy is known as a "straddle" and is used to bet on volatility in the underlying asset's price. The investor profits if the price moves significantly in either direction, but loses money if the price remains relatively stable.

Holding a Put Option and a Call Option on the Same