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+18: Buying Puts in Conjundion with Call Purchases 283 
+dle would be worth more than 5 points and the straddle buyer would make 
+y, even though his put expired worthless. To the downside, a similar situation 
+Mists. If XYZ were below 45 at expiration, the put would be worth more than 5 
+points and he would have a profit despite the fact that the call expired worthless. 
+Table 18-1 and Figure 18-1 depict the results of this example straddle purchase at 
+expiration. The straddle buyer can immediately determine his break-even points at 
+expiration - 45 and 55 in this example. He will lose money if the underlying stock is 
+between those break-even points at expiration. He has potentially large profits if 
+XYZ should move a great distance away from 50 by expiration. 
+One would normally purchase a straddle on a relatively volatile stock that has 
+the potential to move far enough to make the straddle profitable in the allotted time. 
+This strategy is particularly attractive when option premiums are low, since low pre­
+miums will mean a cheaper straddle cost. Although losses may occur in a relatively 
+large percentage of cases that are held all the way until their expiration date, there is 
+actually only a minute probability of losing one's entire investment. Even if XYZ 
+should be at 50 at expiration, there would still be the opportunity to sell the straddle 
+for a small amount on the final day of trading. 
+TABLE 18-1. 
+Results of straddle purchase at expiration. 
+XYZ Price at Total Straddle 
+Expiration Coll Profit Put Profit Profit 
+30 -$ 300 +$1,800 + $1,500 
+40 300 + 800 + 500 
+45 300 + 300 0 
+50 300 200 500 
+55 + 200 200 0 
+60 + 700 200 + 500 
+70 + 1,700 200 + 1,500 
+EQUIVALENCES 
+Straddle buying is equivalent to the reverse hedge, a strategy described in Chapter 4 
+in which one sells the underlying stock short and purchases two calls on the under­
+lying stock. Both strategies have similar profit characteristics: a limited loss that 
+would occur at the striking price of the options involved, and potentially large prof­
+its if the underlying stock should rise or fall far enough in price. The straddle pur-