Long Straddle Option Strategy
What are the characteristics of this option strategy?
A long straddle option strategy involves buying both a call and a put option of the same security with the same strike price and expiration date. The strategy is usually executed on a security when the trader is expecting a large price move but is unsure of the perceived direction of the move.
Is this a bullish, bearish or neutral strategy?
The long straddle is a neutral strategy because it takes advantage of large movements in either direction. A trader may consider the strategy when they anticipate a large move, either up or down, but they are unsure which direction the move will take.
Is this a beginner or an advanced option strategy?
The long straddle strategy is an advanced option strategy and requires careful consideration of the risks involved. It is important to understand the potential for loss as well as the potential for a profit before entering into the strategy. This strategy is not for beginner options traders.
In what situation will I use this strategy?
The long straddle strategy is typically used when a trader is expecting a large move in the underlying security but is unsure of the direction of the move. This strategy exposes the trader to bullish and bearish market moves without having to predict the direction of the price movement.
Where does this strategy typically fall in the range of risk-reward and probability of profit?
The long straddle typically falls within the high risk-reward range and the high probability of profit range. This strategy carries a low risk due to the fact that the trader is exposed to limited losses on the downside and unlimited rewards on the upside. However, this strategy also carries a high probability of success due to the fact that it takes advantage of large moves in either direction.
How is this strategy affected by the greeks?
This strategy is affected by the greeks, specifically delta, gamma, and theta. Delta is the rate at which the option’s price changes in response to a change in the price of the underlying security. Gamma is the rate at which delta changes in response to a change in the price of the underlying security. Theta is the rate at which the option’s price decays over time.
In what volatility regime (i.e., VIX level) would this strategy be optimal?
This strategy is typically most optimal when the volatility levels, or VIX levels, are high. High volatility implies that large market moves are likely and this means that the trader is likely to benefit from the straddle as long as they correctly predict the direction of the price movement, regardless of which way it moves.
How do I adjust this strategy when the trade goes against me? And how easy or difficult is this strategy to adjust?
When the trade goes against the trader, they can adjust the strategy by either rolling the options out to a later expiration date, or by closing the position and taking the loss. Adjusting the strategy depends on the trader’s preferences and goals, and is not always an easy decision. The difficulty of adjusting the strategy depends on the trader’s experience and understanding of the options markets.
Where does this strategy typically fall in the range of commissions and fees?
This strategy typically falls in the mid-to high-range of commissions and fees. This is because the entry and exit of both a call and a put option require separate commission payments.
Is this a good option income strategy?
The long straddle is not typically considered a good option income strategy because it carries a higher risk than other options strategies. Due to the high risk involved, the strategy has a higher probability of loss. Therefore, it is better suited for aggressive traders looking to take advantage of large moves in either direction.
How do I know when to exit this strategy?
It is important for the trader to know when to exit the strategy in order to maximize profits. The trader should have an exit plan before entering into the strategy and should consider taking profits and losses if the security moves in an unexpected direction.
How will market makers respond to this trade being opened?
Market makers usually respond in a neutral manner when the long straddle strategy is opened by another trader. This is because market makers are on both sides of the trade and therefore benefit regardless of the direction of the market move.
What is an example (with calculations) of this strategy?
Suppose a trader expects a large move in MSFT stock when trading at $277 but is unsure whether the move will be up or down. The trader decides to enter a long straddle with MSFT 275 strike call and put options that expire in one month. The trader buys one call for $7.7, and one put for $5.8. The total cost of the trade is $13.5.
If the stock moves 13 points up by expiration, the call option will be worth $15, and the put option will be $0. The total profit of the trade is $1.5 ($15 from the call option minus the $13.5 cost of the trade).
If the stock moves 17 points down by expiration, the call option will be worth $0, and the put option will be worth $15. The total profit of the trade is still $1.5 ($15 from the put option minus the $13.5 cost of the trade).
How MarketXLS can help?
MarketXLS offers an easy-to-use trading and financial analysis platform that traders can use to quickly and accurately analyze complex options strategies like the long straddle. Our platform provides comprehensive historical and real-time data as well as up-to-date news and market analysis so that users can make informed trading decisions. The platform also includes tools for calculating implied volatility, and options pricing and risk metrics such as delta, gamma, and theta. With MarketXLS, traders can quickly and easily identify the best opportunities to enter and adjust the long straddle strategy, as well as determine when to exit the trade.
Here are some templates that you can use to create your own models
Long Straddle Option Strategy
Calendar Straddle
Long Put Synthetic Straddle
Synthetic Short Straddle with Calls
Synthetic Short Straddle with Puts
Calendar Strangle
Long Strangle Option Strategy
Strip Strangle
Strap Strangle
Search for all Templates here: https://marketxls.com/templates/
Relevant blogs that you can read to learn more about the topic
Short Guts & Long Guts Option Strategy
Get RealTime Updated Option Prices
Synthetic Short Straddle With Puts Option Strategy
Overview of Synthetic Strangle Investing
Option Strategies-Short Straddle(Excel Template)