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
Philip November 10th, 2010 at 3:41am
It seems that profits for holding till expiration surpasses that for a shorter holding period when stock prices are very low or high. Shouldn't a shorter holding period have an advantage at all times since there is a time value to it?
Peter October 3rd, 2010 at 9:11pm
Up to you Haroon, which I guess depends on your expected profits from the trade and view of the market.
Haroon Basha October 3rd, 2010 at 6:20pm
Hello Sir,
What is the opportune time to exit from this strategy (Long Straddle)?
Peter September 29th, 2010 at 6:11pm
I would guess that a straddle was named as such because the shape of a short straddle resembles the legs of a horse rider as they "straddle" a horse???
Phil September 29th, 2010 at 2:39am
Hi,
does anyone know the origin of the terms straddle and strangle in this context. I'm confused because stangle suggests to me maybe a higher risk-return chance and straddle implies a gap between something (strike-prices) which is not the case.
I would appreciate your thoughts on the matter, I'm not a native speaker...
Peter August 30th, 2010 at 6:26pm
You can exit the position any time - provided there is enough liquidity of course.
jignesh August 30th, 2010 at 2:04pm
is this necesry to remain in this strategy till expiry? or one can exit before?
monu jnu July 18th, 2009 at 5:24am
i hope this strategie is always good for volitile market u can play in blind because u r making unlimited money with limited lose in any condition of market
Sandeep December 9th, 2008 at 10:51am
Hi Jitin,
What are you looking for exactly?
JITIN December 8th, 2008 at 2:53am
PLZ CAN ANY BODY TELL ME HOW TO THE SAME
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