Chapter 06 · Section 6.1

Combinations to create strangles

In order to create a spread, a sale and a purchase of the same type of options are used (calls or puts). Which combinations are used to create strangles and straddles?

a) To sell a put and buy a call
• b) To buy a call and buy a put
  No. (b) is correct: It is the so called long straddle. But there is another possibility. Please give them both.
  c) To sell a call and sell a put
  d) To sell a call and buy an underlying
  e) b and c

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