Straddles
The Straddle involves the following steps:
Step 1. | buying ATM strike puts and
|
Step 2. | buying ATM strike calls with the same expiration date.
|
This will be a net debit transaction because you are paying for equal numbers of calls and puts. As such, the Straddle is an expensive strategy in terms of a cash requirement. However, if you play the strategy correctly, it needn’t be a high-risk strategy even if the anticipated volatile price action doesn’t materialize.
Diagram 8.1. Straddle.
The risk profile of a Straddle is as follows:
| Straddle | |
|---|---|
| Maximum risk | Net debit of the spread (that is, what you pay) |
| Maximum reward | Unlimited |
| Breakeven on ... |
Get Options Made Easy: Your Guide to Profitable Trading, Second Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
