by Don Fishback
A straddle is the purchase or sale of a put and a call of the same month, same underlying market and same strike price. A strangle has the same characteristics with one exception: Different strike prices for the put and call.
Straddle Example
Assume your analysis indicates that volatility for Dow Jones Index options is very low and you expect volatility to increase sharply. You are not sure if prices will move higher or lower, but want to take advantage of the coming increase in volatility. You decide to buy December 86 straddle but do not want to pay more than 11 per spread for the position. The 86 calls traded last at 4; the 86 puts at 7 ½.

To enter an option Straddle Order you would need to provide the information shown in the table below.
1. Account Number: | 12345 |
2. Market Action: | Buy |
3. Quantity: | 3 |
4. Month & Year: | December 2016 |
5. Contract: | DJX 86c DJX 86p |
6. Order Type: | Limit |
7. Open or Close | Open |
8. Price: | 11 |
Enter the order as follows:
ACCOUNT 12345
BUY 3 DEC 86 DJX CALLS to OPEN
BUY 3 DEC 86 DJX PUTS to OPEN
11 DEBIT
As with any multiple-position limit order you may only fill on one or two of the spreads but at a price no worse than 11 per spread. Maximum risk in this example is the amount of premium paid – while the profit potential is unlimited. When liquidating the position the order can go in as a spread or as individual options.
88 Strike Calls | 88 Strike Puts |
87 Strike Calls | 87 Strike Puts |
86 Strike Calls Buy Calls | 86 Strike Puts Buy Puts |
85 Strike Calls | 85 Strike Puts |
84 Strike Calls | 84 Strike Puts |
Strangle Example
Assume that the S&P 100 Index has been chopping up and down in a range between 480 and 550. Your analysis indicates that the market will remain in that range for several weeks and you decide to take advantage of the situation by selling OEX options on either side of the range. The October 480 puts traded last at 15; the October 550 calls at 10.
To enter an option Strangle Order you would need to provide the following information:
1. Account Number: | 12345 |
2. Market Action: | Sell |
3. Quantity: | 2 |
4. Month & Year: | October 2016 |
5. Contract: | OEX 550 calls OEX 480 puts |
6. Order Type: | Limit |
7. Open or Close | Open |
8. Price: | 25 |
Enter the order as follows:
ACCOUNT 12345
SELL 2 OCT 550 OEX CALLS to OPEN
SELL 2 OCT 480 PUTS to OPEN
25 CREDIT
This position carries unlimited risk while profit potential is limited to the amount of premium received. The order was entered as a spread and must be filled as a spread, although there is no guarantee that both, or either, spread will be filled. If filled, the short options may be covered as a spread or as individual option orders.
550 Strike Calls Sell Calls | 550 Strike Puts |
540 Strike Calls | 540 Strike Puts |
530 Strike Calls | 530 Strike Puts |
520 Strike Calls | 520 Strike Puts |
510 Strike Calls | 510 Strike Puts |
500 Strike Calls | 500 Strike Puts |
490 Strike Calls | 490 Strike Puts |
480 Strike Calls | 480 Strike Puts Sell Puts |
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