You are convinced that a stock's price will move by at least 15% over the next 3 months. You are not sure which way the price will move, but you believe that the results of a patent hearing are definitely going to have a major effect on the stock price. You are somewhat more bullish than bearish however. Which one of the following options strategies best fits this scenario?
A) buy a strip.
B) buy a strap.
C) buy a straddle.
D) write a straddle.

Question

Quizplus · Accepted Answer

A strap involves buying one put option and two call options with the same strike price and expiration dates. This strategy is used when an investor expects a significant price movement but believes that the movement is more likely to be upwards. It fits the scenario described because it allows for profit from a large move in either direction, with extra profit potential if the stock moves up, aligning with the somewhat more bullish outlook.

You Are Convinced That a Stock's Price Will Move by at Least