Optimal Option Strategy for High Volatility

Very Hard Derivative Strategies Option Strategies

Alpha Capital is evaluating an option strategy to hedge its exposure in the foreign exchange market, specifically against fluctuations in the euro (EUR) relative to the U.S. dollar (USD). The firm expects the EUR/USD exchange rate to experience high volatility in the coming months. Alpha Capital considers using a combination of call and put options to formulate a strategy that maximizes its profit potential while minimizing risk.

Given the current market conditions, which option strategy should Alpha Capital employ to ensure it benefits from substantial price movements in either direction while having some premium protection?

A straddle, where Alpha Capital buys both a call and a put option at the same strike price and expiration.

A strangle, where Alpha Capital buys a call option with a higher strike price and a put option with a lower strike price.

A collar, where Alpha Capital buys a put option and sells a call option at different strike prices.

Hint

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