Question

One of your clients is an options trader. In looking over the financials and news for Company X, this client feels that Company X common stock will not fluctuate much in price over the next several months. Which options position listed below will provide the MOST PROFIT for this client with this consideration in mind?

[A] Putting on a bullish call spread
[B] Putting on a short straddle
[C] Buying a put option
[D] Buying a call option

Answer 1

B. Putting on a short straddle.

Step-by-step explanation:

Since the client does not expect any significant move in the stock price, they would sell calls and sell puts, putting on a short straddle. This will be the most profitable of the options positions listed if the market price of Company X remains stable. It will allow the client to receive premiums from the sale of both options.