Series 7 Exam Question 262: Answer and Explanation

Question: 262

An investor wants to generate some income on a stock that they believe will remain at relatively the same price for the next year or so. Which of the following option positions would meet their goal?

• A. Buying a combination
• B. Writing a straddle
• C. Buying a call
• D. Buying a put

Correct Answer: B

Explanation:

B. They are trying to generate income, so they have to sell something. The only answer that has them selling something is Choice (B). Writing (selling) a straddle would allow them to generate income on a stock that's remaining stable, because they would receive the premiums for selling the straddle and be able to profit if neither the call option nor the put option that are part of the straddle go too much in-the-money.