Question

A client with a high risk tolerance anticipates that the market will remain flat for the next 3 months. Which position would produce the maximum profit for this client

Answer 1

Answer: A. Short Straddle

Explanation:

A Short Straddle is a strategy used in the derivative market of Options where the investor sells both a Call Option and a Put Option on the same stock with the same expiration date.

The logic behind this is that they do not expect the underlying stock to change significantly in price for the period of either the Call nor the Put. The goal therefore is to make profit from the buying fees/credit of both the Put and the Call whilst anticipating that neither of them.will be redeemed so the investor will keep both the stock and the buying fees/credit.