Series 7 practice questionmediumOptions — Long Straddle
Which market outlook is most appropriate for an investor who purchases a long straddle?
- AThe investor expects the stock to remain stable
- BThe investor is bullish on the stock
- CThe investor is bearish on the stock
- DThe investor expects significant price movement but is unsure of the direction✓ Correct answer
Explanation
Why D — The investor expects significant price movement but is unsure of the direction
A long straddle buyer profits from significant price movement in either direction. The investor pays premiums for both a call and a put at the same strike price. This strategy is ideal when the investor expects volatility but is uncertain about the direction of the move.
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