Which option strategy allows for attracting profit from significant price movements in either direction?

Which option strategy allows for attracting profit from significant price movements in either direction?

• A. Bull spread
• B. Long straddle
• C. Short strangle
• D. Bear spread

Answer: (B)

The long straddle strategy is a powerful options trading approach designed to capitalize on significant price movements in either direction, whether upward or downward. This strategy involves purchasing both a call option and a put option with the same strike price and expiration date. When the price of the underlying asset experiences a substantial shift, either rising sharply or falling dramatically, the trader can profit from the option that gains value while the other option may lose value. Because the potential for profit is theoretically unlimited on the upside with the call option, and substantial on the downside with the put option, the long straddle effectively allows traders to benefit from volatility in the market. This strategy is particularly useful when a trader anticipates a significant move in the asset's price but is uncertain about the direction of the movement. As a result, the long straddle provides a direct way to profit from volatility, unlike other strategies that are typically directional or limited to specific movements within a defined range.

The long straddle strategy is a powerful options trading approach designed to capitalize on significant price movements in either direction, whether upward or downward. This strategy involves purchasing both a call option and a put option with the same strike price and expiration date.

When the price of the underlying asset experiences a substantial shift, either rising sharply or falling dramatically, the trader can profit from the option that gains value while the other option may lose value. Because the potential for profit is theoretically unlimited on the upside with the call option, and substantial on the downside with the put option, the long straddle effectively allows traders to benefit from volatility in the market.

This strategy is particularly useful when a trader anticipates a significant move in the asset's price but is uncertain about the direction of the movement. As a result, the long straddle provides a direct way to profit from volatility, unlike other strategies that are typically directional or limited to specific movements within a defined range.