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+Chapter 20: The Sale of a Straddle 319 
+deltas of the options involved in his position to determine a neutral ratio. The strad­
+dle writer can do the same thing, of course. It was stated that the difference between 
+a call's delta and a put' s delta is approximately one. Using the same prices as in the 
+previous straddle writing example, and assuming the call's delta to be .60, a neutral 
+ratio can be determined. 
+Prices 
+XYZ common: 
+XYZ January 45 call: 
+XYZ January 45 put: 
+45 
+4 
+3 
+Deltas 
+.60 
+-.40 (.60 - 1) 
+The put has a negative delta, to indicate that the put and the underlying stock are 
+inversely related. A neutral ratio is determined by dividing the call's delta by the put's 
+delta and ignoring the minus sign. The resultant ratio - 1.5:1 (.60/.40) in this case -
+is the ratio of puts to sell for each call that is sold. Thus, one should sell 3 puts and 
+sell 2 calls to establish a neutral position. The reader may wonder if the assumption 
+that an at-the-money call has a delta of .60 is a fair one. It generally is, although very 
+long-term calls will have higher at-the-money deltas, and very short-term calls will 
+have deltas near .50. Consequently, a 3:2 ratio is often a neutral one. When neutral 
+ratios were discussed with respect to ratio writing, it was mentioned that selling 5 
+calls and buying 300 shares of stock often results in neutral ratio. The reader should 
+note that a straddle constructed by selling 3 puts and 2 calls is equivalent to the ratio 
+write in which one sells 5 calls and buys 300 shares of stock. 
+If a straddle writer is going to use the deltas to determine his neutral ratio, he 
+should compute each one at the time of his initial investment, of course, rather than 
+relying on a generality such as that 3 puts and 2 calls often result in a neutral posi­
+tion. The deltas can be used as a follow-up action, by adjusting the ratio to remain 
+neutral after a move by the underlying stock. 
+AVOID EXCESS TRADING 
+In any of the straddle and strangle writing strategies described above, too much fol­
+low-up action can be detrimental because of the commission costs involved. Thus, 
+although it is important to take protective action, the straddle writer should plan in 
+advance to make the minimum number of strategic moves to protect himself. That is 
+why buying protection is often useful; not only does it limit the risk in the direction 
+that the stock is moving, but it also involves only one additional option commission. 
+In fact, if it is feasible, buying protection at the outset is often a better strategy than 
+protecting as a secondary action.