Question

You are long and at-the-money straddle on a stock index. Which of the following statements is valid?

(a) Your position increases in value if, ceteris paribus, the index rises.

(b) Your position increases in value if, ceteris paribus, the index falls.

(c) Your position increases in value if, ceteris paribus, the volatility of the index rises.

(d) All of the above.

Answer 1

Option D is correct

All of the above

Explanation:

In long straddle, investor buys at the money call option and put option with same expiration and same strike price, to profit from significant move in the price in either direction.

If volatility of the index increases then the position will be in profit due to vega.