You Are Long an At-The-Money Straddle on a Stock Index

question 6

Multiple Choice

You are long an at-the-money straddle on a stock index. Which of the following statements is valid?

• A) Your position increases in value if, ceteris paribus, the index rises.
• B) Your position increases in value if, ceteris paribus, the index falls.
• C) Your position increases in value if, ceteris paribus, the volatility of the index rises.
• D) All of the above.

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Definitions:

Budgeted Cash Payments

An estimate of all cash payments that a company plans to make over a specified period, often part of a comprehensive budgeting process.

Continuous Twelve-Month Budget

A financial planning document that forecasts revenues and expenses on a rolling monthly basis for a year.

Production Budget

An estimate of the total cost of production, including raw materials, labor, and overhead, for a specific period.

Cash Budget

A detailed plan that estimates the cash inflows and outflows over a specific period, used for managing liquidity and ensuring solvency.