Gaining Exposure 	 	•	 209
The total premium of $2.16 represents 24 percent of the stock’s price, which 
means that if the implied volatility (around 60 percent) remains constant, 
the stock would have to move 24 percent before an investor even breaks 
even. It is true that during sudden downward stock price moves, implied 
volatility usually rises, so it might take a little less of a stock price move-
ment to the downside to break even. However, during sudden upside 
moves, implied volatility often drops, which would make it more difficult 
to break even to the upside.
Despite this expense, a straddle will still give an investor a lower 
breakeven point than a strangle on the same stock if held to expiration. 
The key is that a strangle will almost always generate a higher profit than 
a straddle if it is closed before expiration simply because the initial cost of 
the strangle is lower and the relative leverage of each of its legs is higher. 
This is yet another reason to consider closing a strangle  early if and when 
you are pleased with the profits made. 
If you do not know whether a stock will move up or down, the best 
you can hope for is to make a speculative bet on the company. When you 
make speculative bets, it is best to reduce the amount spent on it or you will 
whittle down all your capital on what amounts to a roulette wheel. Reduc-
ing the amount spent on a single bet is the reason an intelligent investor 
should stay away from straddles.
With all the main strategies for gaining exposure covered, let’s now 
turn to accepting exposure by selling options.