Series 7 - General Securities Representative Exam

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When would a trader buy a straddle?

She thinks the stock price will trade in range
A
She thinks that prices will trade outside of a range
B
She thinks that prices will go down first and then go up and stay in a range
C
She thinks that prices will explode to the upside, but not immediately
D

Explanations

A trader buys a straddle when they think the price will move outside the strike price + total amount of premium paid for the call and put to the upside OR below the strike price minus the total amount of premium paid