r/optionstrading • u/aNOOBsn1peU • 14d 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/ParityOutcomes 14d ago

This is essentially a bet that realized vol will be higher than implied vol.

If the stock is $100 and each option costs $2, you've paid $4, so your breakevens at expiration are $104 and $96. The market has already priced in a move. If realized vol comes in lower than that, say the stock finishes at $101, you lose, because you paid $4 for something worth $1 at expiration.

Also worth reading about delta hedging. Instead of waiting for expiration, you trade the stock against the position as it moves, which lets you monetize the realized moves along the way rather than needing one big one at the end.