How Can a Strip Trading Strategy Be Created

question 16

Multiple Choice

How can a strip trading strategy be created?

• A) Buy one call and one put with the same strike price and same expiration date
• B) Buy one call and one put with different strike prices and same expiration date
• C) Buy one call and two puts with the same strike price and expiration date
• D) Buy two calls and one put with the same strike price and expiration date

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Definitions:

Utility Function

A mathematical representation describing how a consumer ranks different bundles of goods according to levels of satisfaction.

Risk Averse

A preference for guaranteed outcomes over those with uncertainty, even if the uncertain outcomes might offer a higher expected return.

Coin-Flip Bet

A gambling proposition where the outcome is determined by the flip of a coin, representing a 50/50 chance of winning or losing.

Wealth

The abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions.