Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Long Straddle

Example:                 XYZ stock is trading at $50 

Outlook:                  You anticipate a big move either up or down over the next few weeks and an increase in volatility.

Possible strategy:    Long Straddle                                

                                  Buy one 50 strike call at $3.20

                                  Buy one 50 strike put at  $3.00

                                                       Net Debit  $620 ($620.00)


*All values shown are at the time of expiration. Commissions and other trading fees not included.


Long 50 Call

Long 50 Put

Net Profit























At Expiration:

  • Upside Breakeven = Strike Price + Net Debit
  • Upside Breakeven = $56.20
  • Downside Breakeven = Strike Price - Net Debit
  • Downside Breakeven = $43.80
  • Maximum Loss = Net Debit
  • Maximum Loss = $620   

In Summary: Substantial profit is possible with a big move up or down in the stock. Also an increase in volatility would be favorable.  Volatility up, both call and put premiums up. Volatility only affects time premium.  But keep in mind you are buying all time premium which will decay over time and at an accelerated pace as expiration approaches.

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