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Basics of Spreading: Straddles and Strangles

Continuing Education Credit: 1 hour*
*Available for fee-based courses only, please send us an email for more information.

Course Expiration: Course access expires 12 weeks from date of registration

Cost: Free



Course Overview:

Fourth in the series, this module presents detailed explanations and examples of Straddles and Strangles.

The following spreads are covered in this module:

  • Short Straddle
    A short straddle is constructed by selling (writing) a call and a put on the same underlying stock (or index), at a ratio of 1:1, and with the same strike price and expiration month.

  • Long Straddle
    A long straddle is constructed by purchasing a call and a put on the same underlying stock (or index), at a ratio of 1:1, and with the same strike price and expiration month.

  • Short Strangle
    A short strangle is constructed by selling a call and a put on the same underlying stock (or index), at a ratio of 1:1. The expiration months are the same, but the call has a higher strike price than the put.

  • Long Strangle
    A long strangle is constructed by purchasing a call and a put on the same underlying stock (or index), at a ratio of 1:1. The expiration months are the same, but the call has a higher strike price than the put.

Each Spread discussion includes an analysis of:

  • General Nature & Characteristics
  • Debit vs. credit
  • Motivation for Spreading
  • Risk vs. Reward
    - Maximum Profit
    - Maximum Loss
    - Break Even Point
    - Partial Profit/ Loss
  • Profit & Loss Before Expiration
  • Effect of Volatility
  • Effect of Time Decay
  • Assignment Risk

 

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