The Complete Book of Option Spreads and Combinations: Strategies for Income Generation, Directional Moves, and Risk Reduction (Wiley Trading) by Nations Scott

Author:Nations, Scott [Nations, Scott]
Language: eng
Format: mobi, epub
ISBN: 9781118806203
Publisher: Wiley
Published: 2014-10-07T23:00:00+00:00

Stock Price at Option Expiration Value of 21 Call at Expiration Profit or Loss on 21 Call at Expiration Value of 21 Put at Expiration Profit or Loss on 21 Put at Expiration Total Profit or Loss for Straddle

15 0.00 –2.40 6.00 3.55 1.15

16 0.00 –2.40 5.00 2.55 0.15

17 0.00 –2.40 4.00 1.55 –0.85

18 0.00 –2.40 3.00 0.55 –1.85

19 0.00 –2.40 2.00 –0.45 –2.85

20 0.00 –2.40 1.00 –1.45 –3.85

21 0.00 –2.40 0.00 –2.45 –4.85

22 1.00 –1.40 0.00 –2.45 –3.85

23 2.00 –0.40 0.00 –2.45 –2.85

24 3.00 0.60 0.00 –2.45 –1.85

25 4.00 1.60 0.00 –2.45 –0.85

26 5.00 2.60 0.00 –2.45 0.15

27 6.00 3.60 0.00 –2.45 1.15

As we’ve seen previously, nearly every option spread realizes its maximum profit when the underlying is at the short strike at expiration and realizes its maximum loss when the underlying is at the long strike at expiration. A straddle isn’t a spread, it’s a combination but the same guideline holds, a long straddle experiences its greatest loss, the price paid for the straddle, when the underlying is at the strike price of the options at expiration. In a long straddle there’s no short option, there is nothing but long options so the damage done if the underlying is at the long strike at expiration can be severe. You can see this in Figure 7.2.

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