- The long and short of the options straddle | Fidelity
- Covered Straddle - Investopedia
- Long Straddle Options Strategy - Fidelity
The maximum profit of a short straddle is limited to the credit received for selling the options, but maximum losses have no definite limit. Indeed, Nick Leeson, a rogue trader, bankrupted Barings bank, Britain's oldest merchant bank, partly by selling short straddles on the Nikkei index, betting that the Nikkei index will meander sideways. Why even sell short straddles if potential losses can be much greater than profits? Because directionless markets are more common than bull or bear markets, so a directionless market strategy will pay off more often than not.
The long and short of the options straddle | Fidelity
6. If you 8767 re playing at a loose passive table. Straddling could be a profitable move if you have several opponents that are prone to calling loose preflop , then folding to aggression postflop. With this table dynamic, you could use the straddle to build big preflop pot, then take advantage of passive opponents with aggressive postflop bets.
Covered Straddle - Investopedia
The maximum possible gain is theoretically unlimited because the call option has no ceiling (the underlying stock could rise indefinitely). The maximum risk, or the most you can lose on this trade, is the initial debit paid, which is $875, plus commissions. This would occur if the underlying stock closes at $95 at the expiration date of the options.
Long Straddle Options Strategy - Fidelity
If the stock price is below the strike price at expiration, the call expires worthless, the long put is exercised, stock is sold at the strike price and a short stock position is created. If a short stock position is not wanted, the put must be sold prior to expiration.
Let's assume that with just a week left until expiration, the XYZ October 95 call is worth $, and the XYZ October 95 put is worth $. Since XYZ didn’t perform as expected, you might decide to cut your losses and close both legs of the option for $675 ([$ + $] x 655). Your loss for this trade would be $755 (the $675 gain, minus the $875 cost of entering into the straddle), plus commissions.
A long straddle consists of one long call and one long put. Both options have the same underlying stock, the same strike price and the same expiration date. A long straddle is established for a net debit (or net cost) and profits if the underlying stock rises above the upper break-even point or falls below the lower break-even point. Profit potential is unlimited on the upside and substantial on the downside. Potential loss is limited to the total cost of the straddle plus commissions.
The key to making money with the options straddle is for the security you are betting on to move by a big amount in a small time frame.
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If the stock price is above the strike price at expiration, the put expires worthless, the long call is exercised, stock is purchased at the strike price and a long stock position is created. If a long stock position is not wanted, the call must be sold prior to expiration.
With a straddle in play, many players will fold marginal to decent hands like lower pocket pairs and suited connectors. Playing behind a straddle takes these hands out of a raise first in (RFI) range and into a calling or three-betting range.