21 lines
1.1 KiB
Plaintext
21 lines
1.1 KiB
Plaintext
208 • The Intelligent Option Investor
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Straddle
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GREEN
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Downside: Undervalued
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Upside: Undervalued
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Execute: Simultaneously buy an ATM put and an ATM call
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Risk: Amount of premium paid
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Reward: Unlimited?
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The Gist
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I include the straddle here for completeness sake. I have not included a
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lot of the fancier multioption strategies in this book because I have found
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them to be more expensive than they are worth, especially for someone
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with a definite directional view on a security. However, the straddle is re-
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ferred to commonly and is deceptively attractive, so I include it here to
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warn investors against its use, if for no other reason.
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The straddle shares many similarities with the strangle, of course, but
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straddles are enormously expensive because you are paying for every pos-
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sible price the stock will move to over the term of the options. For example,
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I just looked up option prices for BlackBerry (BBRY), whose stock was
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trading at $9.00. For the 86 days to expiry, $9-strike calls (delta = 0.56) and
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$9-strike puts (delta = –0.44) were priced at $1.03 and $1.13, respectively. |