§ 01
| Strategy | Structure | Cost | Breakeven |
|---|---|---|---|
| Long Straddle | Buy ATM call + ATM put | Expensive (both ATM) | Strike ± total premium |
| Long Strangle | Buy OTM call + OTM put | Cheaper (both OTM) | Wider breakevens — needs bigger move |
| Short Straddle | Sell ATM call + ATM put | Collect premium | Same as long but reversed — profit if stock stays near strike |
| Short Strangle | Sell OTM call + OTM put | Collect less premium | Wider profit zone but unlimited risk |
§ 02
The key question for straddles: is the implied move (priced into the options) larger or smaller than the actual expected move? If IV is already pricing a 10% move and you expect 15%, buy the straddle. If you expect only 5%, sell it.
§ 03
Before a company’s earnings report, check the ATM straddle price. It tells you the market’s expected move. Compare to the stock’s average historical earnings move — is the market over- or under-pricing the event?
§ 04
A stock at $100 has a pre-earnings straddle priced at $8 (implying an 8% move). Historically, the stock moves 12% on earnings. What’s the trade?
§ 05
§ 06
Long straddle: buy ATM call + ATM put, same strike + expiry. When does this make money?
Five questions · AI feedback
Sit with the ideas.
Stock at $100. The at-the-money straddle (30 days to expiration) costs $8. What is the implied move, and what must happen for the buyer to profit?
Why: