A combination of a long position in a strip and a long position in a strap for the same strike and maturity (and with similar but opposite proportions of calls and puts) is similar to:
A) A strangle position.
B) A straddle position.
C) A collar position.
D) None of the above.

Question

Quizplus · Accepted Answer

A strip consists of a long position in one call and two puts with the same strike price and expiration date, while a strap consists of a long position in two calls and one put with the same characteristics. Combining these with opposite proportions essentially doubles the exposure to both calls and puts at the same strike price and expiration, which mirrors the structure of a straddle (long in both a call and a put with the same strike price and expiration). This combination emphasizes a significant move in either direction of the underlying asset's price, similar to a straddle's payoff structure.

A Combination of a Long Position in a Strip and a Long