Series 7 - General Securities Representative Exam
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It is February 26th. Stock XYZ is trading at $100 per share. Gina thinks XYZ will move sideways for the next month; maybe down to $97 or so or maybe up to $103 or so. Which trade BEST describes a trade that would fit her market outlook?
Buy the March 100 Straddle
A
Sell the June 100 Call
B
Buy the March 95/105 Strangle
C
Sell the March 95/105 Strangle
D
Explanations
Selling a strangle allows a trader to profit from a sideways market. Since Gina thinks that XYZ will stay between 97 and 103 for the next month, this is the only suitable choice. Ideally, upon March expiration, the 97 put and 103 calls that she sold will expire worthless and she gets to keep the premium received