Long Straddle
A long straddle is a position that is a neutral strategy that profits from the passage of time and any decreases in implied volatility. The long straddle is an undefined risk option strategy.
Directional Assumption: Neutral
Setup:
- Buy ATM Call
- Buy ATM Put
Ideal Implied Volatility Environment : High
Max Profit: Credit received from opening trade
How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price
Short Straddle
A short straddle is a position that is a neutral strategy that profits from the passage of time and any decreases in implied volatility. The short straddle is an undefined risk option strategy.
Directional Assumption: Neutral
Setup:
- Sell ATM Call
- Sell ATM Put
Ideal Implied Volatility Environment : High
Max Profit: Credit received from opening trade
How to Calculate Breakeven(s):
- Downside: Subtract initial credit from Put strike price
- Upside: Add initial credit to the Call strike price
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