Thursday, June 30th, 2016

why isn’t the long straddle the most popular options trading strategy?

especially for populations OTA tiles appears to be the mejor.ligero motion will put him? n on money and not take so much risk as the dem? s


2 Responses to “why isn’t the long straddle the most popular options trading strategy?”
  1. Cosmo Cramer says:

    The long straddle works best when you buy the options while market volatility is low, thus paying much less premium. If the market is already going nuts, you may be very right that it will not be moving sideways, but still not make much profit due to the implied volatility causing expensive premiums. So that means, the best time to enter a long straddle is when volatility is low, but you believe it will be more volatile before your contracts expire. You still have risk that volatility will remain low and the market will move sideways.

    Don’t get me wrong. I believe the long straddle is a very good options strategy. I was just pointing out it’s downside. Rather than one best options trading strategy, I think there are good ones better used for certain market conditions.

  2. James says:

    Well, first of all, you are wrong that the “slight movement” will bring you money. The problem is that the immense amount of premium that you paid for both call and put options in one position brings the breakeven point of Long Straddles very very far away. In fact, after taking account the break even point, you would make very little profit even if the stock moved quite strongly in one direction.

    Another problem with the long straddle is that due to the immense amount of extrinsic value, it is very sensitive to volatility crunch especially those beginners who tries to use the long straddle for earnings release speculation. After volatility crunch, there is almost no way to make a profit.

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