Question

You buy a call option and a put option on general electric. both the call option and the put option have the same exercise price and expiration date. this strategy is called a _________. time spread money spread short straddle long straddle

Answer 1

This strategy is called a LONG STRADDLE. A long straddle refers to the combination of buying a put and a call option both of which have the same strike price and expiration date. A trader that uses long straddle technique is trying to protect his interest in regard to the volatility of the item he has bought.