Profit Loss Graph for Straddles and Strangles

Straddles and Strangles are very similar structures. The both involve buying a put and a call, the difference is that strangle has them at different prices.  Combining

a long put 

and

a long call 

You get a Straddle

In this example the 200 put and the 200 call were bought. Once this position is entered the owner is hoping for a move in either direction. Since you are long both a put and a call, you have bought both premiums and this is your max loss as can be seen on the graph.  The break even points are the cost of the premiums away from center strike.

 

Bob Bullock

Contributing Writer