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Buy Straddle
Buying a straddle consists of purchasing the same strike call and put in the same contract
month. Since both options are bought the buyer will pay a premium. This is a non-directional
, volatility spread that is looking for price movement in either direction. It is a
limited risk/unlimited reward strategy. This strategy is normally implemented when the
trader believes that implied volatility is too low or the futures market is ready to move.
Breakeven point at expiration occurs when futures price is either the same distance higher or lower than the strike price as the premium paid.
Maximum profit = unlimited only to the extent in which the futures market can move, minus premium paid.
Maximum loss = premium paid.
- In The Money: futres price either above or below strike price.
- At The Money: futures price at or near strike price.
- Out Of The Money: None. The straddle has to be either ITM OR ATM.
- Delta is positive when above the strike or negative when below the strike.
- Gamma is positive. Underlying price movement helps.
- Vega is positive. Higher implied volatility helps.
- Theta is negative. The passage of time hurts.
