Series 7 Exam Question 372: Answer and Explanation

Question: 372

An investor is holding 1 ABC Oct 35 call option. Which of the following option positions, if purchased by this customer, would create a long straddle?

• A. Short 1 ABC Nov 35 call option
• B. Short 1 ABC Oct 30 call option
• C. Long 1 ABC Oct 40 call option
• D. Long 1 ABC Oct 35 put option

Correct Answer: D

Explanation:

D. "Long" means to buy, so to have a long straddle, you can't have any sells (shorts). Thus, you can cross off Choices (A) and (B). To create a long straddle, the investor needs to buy a call and buy a put with the same stock, same strike price, and same expiration date. The only answer that works is Choice (D).