Series 7 Exam Question 87: Answer and Explanation

Question: 87

Investors who own a long-straddle or long-combination position are hoping for the underlying stock to be

• A. bullish
• B. bearish
• C. volatile
• D. stable

Correct Answer: C

Explanation:

C. Remember, investors who are long straddles or long combinations are buying a call in case the price of the underlying stock increases in value and buying a put in case the underlying stock decreases in value. So looking at that, these investors don't care if the underlying security increases in value or decreases in value; they just want it to move enough in either direction for them to have a profit. Therefore, they are looking for volatility.