Straddle
Long Straddle
Overview
Long straddle is an options strategy where you buy a call and a put with the same strike price and expiration date. This strategy profits from large price movements in either direction.
Features
Components
Profit source
Underlying price | Source |
Rise | Call value increase |
Fall | Put value increase |
Case study
Let's imagine a made-up company called TECH.
Right now, TECH's stock price is $100 per share. With its earnings report approaching and significant market disagreement on future price direction, you anticipate the stock will experience a large price movement but are unsure of the specific direction, so you decide to use a Long Straddle strategy.
You buy one Call option with a strike price of $100, paying a premium of $5 per share. Simultaneously, you buy one Put option with the same strike price of $100, also paying a premium of $5 per share.
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Short Straddle
Overview
Short straddle is an options strategy where you sell a call and a put with the same strike price and expiration date. This strategy profits when the asset’s price stays near the strike price.
Features
Components
Profit source
Underlying price | Source |
Rise | Premium from out-of-the-money calls |
Fall | Premium from out-of-the-money puts |
Case study
Let's imagine a made-up company called TECH.
Right now, TECH's stock price is $100 per share. Given its recent low volatility in a stable market environment, you think the stock price will remain stable in the near future, so you decide to use a Short Straddle strategy.
You sell one Call option with a strike price of $100, receiving a premium of $5 per share. Simultaneously, you sell one Put option with a strike price of $100, also receiving a premium of $5 per share.
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