Buying Real Straddles


Recent market volatility has many traders looking for ways to benefit from all these gyrations. And virtually every options textbook will tell you that if you expect a stock to move significantly but are unsure if it will move up or down, the indicated option strategy is to go long a straddle, that is, to buy both a put and a call option with the same exercise price and same expiration date. It sounds simple enough: if the underlying moves up sufficiently the gain on the call will be greater than the loss on the put, and if the underlying heads south, the gain on the put will outweigh the loss on the call.