FACTOID # 9: The bookmobile capital of America is Kentucky.
 
 Home   Encyclopedia   Statistics   States A-Z   Flags   Maps   FAQ   About 
   
 
WHAT'S NEW
 

SEARCH ALL

FACTS & STATISTICS    Advanced view

Search encyclopedia, statistics and forums:

 

 

(* = Graphable)

 

 


Encyclopedia > Short straddle

To straddle is to sit, stand or walk with the legs spread wide.


The expression is used by writer John Berger when he mentions: "when an artist works, he straddles time".

Image:straddle_figure.png


In finance, a straddle is an investment strategy involving the purchase or sale of particular derivative securities.


A long straddle involves going long (i.e. buying) a call and put option on some stock, interest rate, index or other underlying. The two options are typically bought at the same strike and expiry at the same time. The owner of a long straddle makes a profit if the underlying price is a long way from (either above or below) the strike price. Thus an investor may take a long straddle position if he thinks the market is highly volatile but does not know in which direction it is going to move.


Conversely a short straddle is the exact opposite position, i.e. going short (selling) the two options. The investor makes a profit if the underlying price is close to the strike at expiry. Thus the investor thinks the markets are unlikely to move much between purchase and expiry of the options. A short straddle position is highly risky.


Nick Leeson took short straddle positions when chasing losses he had run up for his employer, Barings Bank. He had initially invested in futures on the Nikkei 225 stock index. Following a dramatic fall in the market, largely due to the Kobe earthquake, Leeson lost millions. He tried to re-coup these losses by investing in the higher risk, but potentially more rewarding, straddles. He bet that the Nikkei would stabilise and stay in a range around 19,000. His bet failed and losses escalated to $1.4bn, causing the bankruptcy of Barings.

An option payoff diagram for a short straddle position

  Results from FactBites:
 
ASX Options Short Straddle (673 words)
The short straddle is a high risk strategy, with the potential for damaging losses if the share price moves sharply in either direction.
However, because of the risk of exercise, few short straddles are held until expiry.
The short straddle is a high risk strategy and should only be employed if you are very confident that the share price will remain steady.
Straddle - Wikipedia, the free encyclopedia (573 words)
In finance, a straddle is an investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit based on the magnitude of price movement in the underlying security, regardless of the direction of price movement.
Thus, an investor may take a long straddle position if he thinks the market is highly volatile, but does not know in which direction it is going to move.
A short straddle position is highly risky, because the potential loss is unlimited, whereas profitibility is limited to the premium gained by the initial sale of the options.
  More results at FactBites »

 
 

COMMENTARY     


Share your thoughts, questions and commentary here
Your name
Your comments

Want to know more?
Search encyclopedia, statistics and forums:

 


Press Releases |  Feeds | Contact
The Wikipedia article included on this page is licensed under the GFDL.
Images may be subject to relevant owners' copyright.
All other elements are (c) copyright NationMaster.com 2003-5. All Rights Reserved.
Usage implies agreement with terms, 1022, m