Which of the following option strategies would suit him?

An investor has a bullish outlook on the market.

Which of the following option strategies would suit him?

I. Risk reversal

II. Collar

III. Bull spread

IV. Butterfly spread
A . II and IV
B . I, III and IV
C . I and III
D . I, II, III and IV

View Answer

Answer: C

Explanation:

The investor would benefit from the risk reversal and the bull spread as both these strategies have a payoff profile that benefit from rising prices of the underlying. The collar is the opposite of risk reversal, and benefits during a bear market, and the butterfly spread benefits when prices remain range bound. Therefore Choice ‘c’ is the correct answer.