A short straddle involves selling both a call option and a put option with the same exercise price and expiration date. The strategy aims to profit from a decrease in volatility and is most profitable when the stock price stays near the exercise price at expiration.

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A Short Straddle

Question 107

Multiple Choice

A short straddle:

A) consists of a long call and a long put
B) consists of a long and a short call with same exercise price
C) will make the greatest profit if the share price at expiry is as close as possible to the exercise price
D) is a strategy that profits from high volatility.
E) None of these.

Correct Answer: