Long Straddle
| B/S | Strike | Type | Price |
|---|---|---|---|
| Buy 1 ATM | $40 | Call | $1.14 |
| Buy 1 ATM | $40 | Put | $1.14 |
| Net Debit | $228 | ||
A long straddle is where you buy both a call and a put at the same strike price in the same expiration month.
The Max Loss is limited to the total premium paid for the call and put options.
The Max Gain is uncapped as the market moves in either direction.
Characteristics
When to use: When you are bullish on volatility but are unsure of market direction.
A long straddle is an excellent strategy to use when you think the market is going to move but don't know which way. A long straddle is like placing an each-way bet on price action: you make money if the market goes up or down.
But, the market must move enough in either direction to cover the cost of buying both options.
Buying straddles is best when implied volatility is low or you expect the market to make a substantial move before the expiration date - for example, before an earnings announcement.
Long Straddle Greeks
Delta
Gamma
Vega
Theta
50 Comments
joshua November 11th, 2011 at 5:19pm
in your graph you have time +60. how does a longer or shorter expiration affect the straddle. when does time decay begin to show significant loses if the underlying has not moved?
Peter November 9th, 2011 at 6:39pm
This strategy is call a Risk Conversion.
Click to enlarge:
To answer your questions;
a) Risk Conversion
b) Unlimited
c) $130.10 d) This strategy is very bullish, so not suited to markets that trade sideways alot. If you're view of the market is neutral you might sell straddles or strangles.
Paresh November 7th, 2011 at 8:42am
120 strike put @ 3.85 and 130 strike call @ 2.80
Peter November 7th, 2011 at 4:28am
Calls or puts?
Paresh November 6th, 2011 at 5:42am
Hi
I am short on Sterlite Industries 120 strike price @ 3.85 and at the same time long at 130 strike price @ 2.8. Current Market Price of Sterilite is 123/-
a) What is this strategy called?
b) What will be by max gain / loss?
c) What will be my break even?
d) Is this the correct strategy in current market scenario where market is up on one day and down on next day?
Peter July 26th, 2011 at 8:03pm
No, you would need to buy the OTM put options for it to be a strangle. Buying the calls and selling the puts resembles a synthetic - but with different strike prices it has the same profile as a long collar.
reza July 26th, 2011 at 7:21pm
Hi,
can you tell me if I bought calls OTM of XYZ stock and then sold OTM of XYZ put options, is this called strangle and when would you make such trade strategy?
Peter July 18th, 2011 at 4:28pm
That's called buying a strangle.
Naga July 18th, 2011 at 11:42am
Hello...
Please tell me what is this strategy called???
Ex.. buying 5400 put one lot, buying 5600 call one lot in nifty (present rate of nifty future is 5500)
Peter May 3rd, 2011 at 5:46pm
Hi Manish,
First - by its definition a Straddle must have the same strike for call and put. ATM is the best selection because it gives the position the greatest chance of success as the underlying can move either way to profit.
Second - a Strangle that uses ITM options is called a Long/Short Guts. You can use ITM calls and puts for sure...the premiums will be higher though and so will your break-even points.
Add a Comment