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
To create a spread, the purchase of an option is combined with the sale of an option of the same type. To create a straddle, options positions with the same underlying, same exercise price, same expiration date are used.