Which strategy involves buying a put option and selling a call option?

The strategy that involves buying a put option and selling a call option is known as the collar strategy. This approach is typically used by investors to protect against potential losses in a stock position while allowing for some upside potential.

In a collar strategy, the investor holds a long position in an underlying asset (such as stock) and simultaneously buys a put option to provide downside protection. By selling a call option, the investor collects a premium which helps offset the cost of purchasing the put option. This creates a "collar" around the price of the underlying asset — the put option limits the downside risk, while the call option limits the upside potential.

The collar strategy is particularly useful for investors looking for a balanced approach to risk management, as it helps to reduce volatility in their investment position while also potentially generating income. This strategy is especially effective in uncertain market conditions where an investor may want to mitigate risks while retaining some exposure to potential gains.