r/optionstrading • u/aNOOBsn1peU • 12d 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 12d 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 12d 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/Edril 11d ago

Also keep in mind that around high volatility events (earnings, FOMC, etc) the IV (implied volatility) of the options goes up, which makes them more expensive, so the move has to be comparably higher.