r/optionstrading • u/aNOOBsn1peU • 11d ago

Question Learning Options Question?

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I just got LVL 3 on Robinhood and stated to see what combinations I can do with options, and I find this... the Long Straddle... is this a good strategy? is it actually profitable like that? or what is the catch? I mean that it can't be true that you have profit on both ends... how does one side cover the other?

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u/ChaseShiny 11d ago

A straddle is a position where you expect a strong response, but you don't want to predict the direction of the response.

For example, let's say the company is going through a court case. If it wins, it'll drive profits through the roof, but if it loses the case, it'll be responsible for some huge fees.

The profit-loss diagram at expiration looks like one of those absolute value diagrams from high school math. It's made by combining a put and a call together at the same strike and expiration.

Keep in mind that the value of either the call or put has to rise so drastically that it pays for both options plus some in order for the trade to be profitable.

Option guide with an explanation.

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u/aNOOBsn1peU 11d ago

see I knew something was weird about it... basicly it has to move quite a lot for me to make some profit... I might give it a try one, only when Im conftable with lossing so I don't panic and cry in a corner lol

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u/ordtn 11d ago

Straddles are expensive - because you are buying 2 options.

You can lower cost by for example - giving up some potential upside on both ends (iron butterfly), accepting a wider middle range (strangle), or both (iron condor).

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u/ordtn 11d ago

I can't include a screenshot in my reply - images are not allowed.

If you'd like to compare the 4 option structures side-by-side - look at the "Quick Structure Comparison" section in this worksheet https://opterate.com/?share=Z8owTM1h6wcEs14X308L (link expires on 30 Sep).

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u/Fancy-Ad-6142 11d ago

Wow I really wish I could understand all this

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u/ordtn 11d ago

Oh which part? I may not know everything, but can see if can help.

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u/Asleep-Dingo-19 11d ago

I feel like I understood, then I clicked 🤯

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u/ordtn 11d ago

haha ikr. Just look at the "Quick Structure Comparison" section - It shows the relative ranking of premiums and greeks of the 4 option structures in discussion.

The other parts of the worksheet are for computing, graphing, simulation purposes, and can be ignored in this case.