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Can anybody explain how option straddles work?
Posted on 7/2/16 at 3:32 pm
Posted on 7/2/16 at 3:32 pm
It seems to me like if you bought an ATM call and an ATM put on the same security, the losses you would take on the loser would offset the gains on the winner. What am I missing here?
This post was edited on 7/2/16 at 3:35 pm
1
Posted on 7/2/16 at 4:28 pm to LSUTigersVCURams
No, you profit on the downside or upside but the movement in either direction has to exceed the cost of the options.
You only lose if the price doesn't change much.
So say you buy 100 calls and 100 puts at $1 piece strike $50. Anything over $52 or under $48 profits. In between and you lose. So your max loss is the price of the calls and puts assuming the contract expires at the strike.
You only lose if the price doesn't change much.
So say you buy 100 calls and 100 puts at $1 piece strike $50. Anything over $52 or under $48 profits. In between and you lose. So your max loss is the price of the calls and puts assuming the contract expires at the strike.
Posted on 7/2/16 at 4:35 pm to southernelite
Makes perfect sense. Thanks man.
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