E. Option Trading Strategies (continued)
6. Buying or Writing an Option Straddle
- An Option Straddle is the purchase or the writing of both a put and a call on the same security.
- a. Buying a Straddle: Price of underlying security is expected to move SHARPLY up or down before option expiration date. Buy a put and a call. Say you pay a put and a call premium of $3.00 each. If the stock moves from $50 to above $56 or below $44, a profit is made.