What a option straddle in Tesla will bring? | Options Analysis
Call and put options are strategies we usually make when we believe the stock will rise or fall. But what if we can't make sound judgment on stock trends? Generally high volatile stocks are less predictable and vice versa.
Straddle strategy is an option strategy often used when you are not sure about whether the stock will rise or fall, but the volatility is with certainty, a good example of volatility here is $Tesla(TSLA.US$ in 2020.
To buy a straddle option is to simultaneously buy a call option and a put option on the same underlying stock with the same expiration date and strike price.
Here I use the Options Analysis tool on moomoo to see the potential P/L we could make if we buy straddle. The Tesla example below shows the straddle I created on July 30th. The closing price of the previous day was $1499.11, this example involves buying straddle options with a strike price of $1500 and paying a total of $23188 (100 shares of call & put, quite expensive) in premium for the two options contracts.
The calculation of option prices is quite complicated, but it is positively correlated with volatility.
As shown in the figure, If the stock price rises over $1731.88 or falls below $1268.12, you'll be profit. Conversely, if the stock price fluctuates between $1268.12 and $1731.88, you will lose money. The closer the price is to the strike price, the greater the loss.
Another form of straddles is short straddle.
A short strddle simultaneously sells an at-the-money put and an at-the-money call, it profits when the price of the underlying stock trades in a narrow range between the breakeven points, but the profit is limited that equivalent to the premium collected from writing the at-the-money call and put options.
In short, high volatility is the basic condition for buying options.
Hope this example helps you understand and thanks Moomoo for providing such a easy tool for option players, appreciate a lot.
The giveaway is about to end up by July 31, check out the article below to win option depth quote with better market data.
The giveaway is about to end up by July 31, check out the article below to win option depth quote with better market data.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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treydongui : way to lay that out in a way everyone could understand. not easily done. thanks for sharing your time and knowledge fella
ram1505 : But how do you buy an option with straddle strategy in moomoo?