Long At-the-Money Straddle
This position is initiated during unstable market conditions when the trader feels prices could move sharply in either direction. The position, which "straddles" the market, is also called a volatility trade because it profits when the market moves sharply in either direction or implied volatility increases.
By purchasing an at-the-money call and a put at the same strike price, the trader locks in the strike price. Profits are unlimited in either direction. Losses are limited to the total premium paid.
Position Premium Dollar Premium Delta Buy one $20 crude oil call $1.17 $1,170 +.52 Buy one $20 put - Net debit - Net delta $1.17 $2.34 $1,170 $2,340 -.48 +.04 Maximum risk $2.34 per barrel $2,340 per position Maximum profit Unlimited in either direction Break-even futures price $17.66 and $22.34 Position Premium Dollar Premium Delta Buy one $260 gold call $6.70 $670 +.50 Sell one $260 put - Net debit - Net delta $6.70 $13.40 $670 $1,340 -.50 0 Maximum risk $13.40 per ounce $1,340 per position Maximum profit Unlimited in either direction Break-even futures price $246.60 and $273.40
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
Copyright 2008 Capitol Commodity Services, Inc. All Rights Reserved.
Education
- Futures Education
- Options Information
- Options Strategies
- Long At-the-Money Call
- Short Out-of-the-Money Call
- Covered Call
- Ratio Write
- Long Out-of-the-Money Call
- Long At-the-Money Put
- Short Out-of-the-Money Put
- Short Covered Put
- Bull Call Spread
- Bear Call Spread
- Bear Put Spread
- Bull Put Spread
- Long At-the-Money Straddle
- Long Strangle
- Short At-the-Money Straddle
- Short Strangle
- Call Ratio Backspread
- Put Ratio Backspread
- Synthetic Long Put
- Synthetic Long Call
- Synthetic Short Futures
- Synthetic Long Futures
- Fence
