Long Straddle – The Option Strategy Desk Reference

Long Straddle

Strategy: Buy n ATM Calls, 90 DTE

Buy n ATM Puts, Same Expiry

Example:

Price Chart: A series of strong directional price moves

Current IV%: 25% (to reduce premium values)

IV Rank: 10 to 20

Trade: Buy n ATM call options; buy n ATM put options. (All options expire 90 DTE.)

Strike Deltas: (both strikes ATM)

Long ATM Call 0.50

Long ATM Put 0.50

Goals: A strong directional price move benefits one of the ATM long options as it moves deeper ITM. The opposite long option is sold as soon as the trader is confident in a sustained directional price move.

Manage: Watch for a strong directional price move. Respond by selling the losing long options for as much premium as possible and retaining the profitable long options as they move deeper ITM. Once a satisfactory profit is achieved, sell the remaining long options. If ample time remains, consider using the long options to cover a bull call or a bear put to collect additional premium.

Profit: Close when the remaining option achieves a profit of 30 percent or more.

Loss: Close if the directional move changes and begins to reduce the value of the remaining options.