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
c) To sell a call and sell a put
d) To sell a call and buy an underlying
• e) b and c
  Yes. The purchase (sale) of a straddle involves the simultaneous purchase (sale) of a call and a put for the same underlying with the same exercise price. The strangle is similar except different exercise prices are used. Continue

(Click here for help)