ler 20: The Sale of a Straddle 
GURE 20-2. 
ked straddle sale. 
307 
Stock Price at Expiration 
the stock at 52. If, however, he is planning to take other action that might involve 
staying with the position if the stock goes to 55 or 56, he should allow enough collat­
eral to be able to finance that action. If the stock never gets that high, he will have 
excess collateral while the position is in place. 
SELECTING A STRADDLE WRITE 
Ideally, one would like to receive a premium for the straddle write that produces a 
profit range that is wide in relation to the volatility of the underlying stock. In the 
example above, the profit range is 38 to 52. This may or may not be extraordinarily 
wide, depending on the volatility of XYZ. This is a somewhat subjective measure­
ment, although one could construct a simple straddle writer's index that ranked strad­
dles based on the following simple formula: 
I d Straddle time value premium n ex= _______ ..._ ___ _ 
Stock price x Volatility 
Refinements would have to be made to such a ranking, such as eliminating cases in 
which either the put or the call sells for less than ¼ point ( or even 1 point, if a more 
restrictive requirement is desired) or cases in which the in-the-money time premium 
is small. Furthermore, the index would have to be annualized to be able to compare 
straddles for different expiration months. More advanced selection criteria, in the