Option Straddles Help
Last updated
Related pages:
The Straddle Screener will generate a list of straddles which can be filtered by selecting values using the drop down menus and clicking GO.
Expiration - only stocks expiring in the selected month will be reported. Minimum Price - only stocks trading above this price will be reported. Maximum Price - only stocks trading below this price will be reported. Minimum Open Interest - stocks with accumulative open interest higher than the sum of open interest for all contracts for the corresponding expiration date will be reported Number of Results - the number of straddles to include in the report.
The Straddle Screener displays the following fields:
- Number — the row number
- Symbol — the underlying stock symbol
- Call — the call symbol
- Call Price — the price of the call leg
- Put — the put symbol
- Put Price — the price of the put leg
- Straddle Price — the put price + the call price
- Time Value — the straddle price less the intrinsic value
- Straddle Open Int — the open interest of the call + the open interest of the put
- Stock Open Int — the sum of open interest for all contracts for the stock with the same expiration as the straddle.
- Under Price — the price of the underlying security
- % Premium — the percentage of premium relative to the underlying stock price
- Moneyness — see Moneyness
Trading Option Straddles Many factors should be examined to find good candidates for straddles. The Stock Option Straddle Screener analyzes options and identifies straddle candidates.
Buying straddles can be expensive and the probability of profit is lower than selling straddles. Nonetheless, long straddles can capture profit on short term price moves, and the potential profit is greater than that of short straddle positions. The potential profit is greater, but the probability of profit is smaller.
Short selling straddles has a higher probability of return, though that return is limited to the proceeds from the sale of the straddle. Long straddles are typically held for shorter periods, since the time decay for holding two simultaneous options can be costly. On the contrary, the short straddle holder hopes to collect the premium lost due to time decay, and will generally have to hold this position to realize a profit.
It is difficult to predict the direction a stock will take. The theory behind buying straddles is that a profit can be made regardless of the direction a stock moves. Widely anticipated news, such as pending earnings or anticipated settlement of litigation, can drive option premiums higher and increase the cost of buying options. The revelation of the news may or may not affect the stock price, but the absence of the event that was expected to affect the stock price will result in a drop in option premium. This can be costly to the option buyer.
Candidates for long straddles are stocks that:
are expecting a price move, perhaps due to merger rumors, impending earnings, settlement of pending litigation, etc. have relatively low premiums, (i.e. have not had their prices driven up by the anticipation of news). have liquidity in the option market, avoid options with little or no open interest or volume
Use the Straddle Screener.
The perfect short straddle candidate is a stock that has high short term volatility, but ultimately stays near the current price or the strike price. Short straddle sellers should avoid stocks that have shaky underpinnings or histories of wild price swings. Good candidates for short straddles:
Have relatively high market caps A stable earnings history have just experienced an unusual, but explainable, price move yield 10% or more selling two months out have liquidity in the option market, avoid options with little or no open interest or volume
Use the Straddle Screener.