A Long Straddle

question 25

Multiple Choice

A long straddle

• A) is a strategy that produces profits when the price of the underlying security moves significantly in either direction.
• B) is a strategy based on the expectation that the price of the underlying security will be relatively constant.
• C) consists of selling and writing an equal number of puts and calls with different strike prices but the same expiration date and the same underlying security.
• D) consists of buying a call at one strike price and then writing a call at a higher strike price.

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Definitions:

Sales Revenues

The total income generated from the sale of goods and services by a company before any costs or expenses are deducted.

Cash Operating Expenses

Expenses incurred during the operational activities of a business that affect cash flow, such as paying salaries and purchasing materials.

Simple Rate Of Return

A financial ratio used to calculate the profit an investment will generate, expressed as a percentage of the initial cost.

After-Tax Discount Rate

The rate used to discount future cash flows to their present value after accounting for the effects of taxes.