Question: In a straddle strategy, a trader buys a put and a call with the same strike price. True or False: She does this with the

In a straddle strategy, a trader buys a put and a call with the same strike price. True or False: She does this with the hope of making a risk free arbitrage profit.

True

False

Suppose a trader is initially short a share of stock and then sells (shorts) a put on that stock. The trader:

Pays a premium and gains protection when the price of the share rises

Receives a premium and gives up potential profit when the price of the share rises

Pays a premium and gains protection when the price of the share falls

Receives a premium and gives up potential profit when the price of the share falls

A strangle is cheaper to purchase than a straddle because, compared to a straddle:

The put is more in the money and the call is more out of the money

The put is more out of the money and the call is more in the money

The put is more in the money and the call is more in the money

The put is more out of the money and the call is more out of the money

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