CHAPTER 15
Straddles and Strangles
Straddles and strangles are the quintessential volatility strategies. They are the purest ways to buy and sell realized and implied volatility. This chapter discusses straddles and strangles, how they work, when to use them, what to look out for, and the differences between the two.
Long Straddle
Definition: Buying one call and one put in the same option class, in the same expiration cycle, and with the same strike price.
Linearly, the long straddle is the best of both worlds—long a call and a put. If the stock rises, the call enjoys the unlimited potential for profit while the put’s losses are decidedly limited. If the stock falls, the put’s profit potential is bound only by the stock’s falling to zero, while ...
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