Straddle

Purchase or sale of an equal number of puts and calls with the same terms at the same time. Related: spread

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straddle strad‧dle [ˈstrædl] noun [countable] FINANCE

1. a combination of call option S (= rights to buy particular shares at a fixed price within a certain period of time) and put option S (= rights to sell particular shares at a fixed price within a certain period of time) relating to the same shares and with the same exercise price. The holder of a straddle makes a profit if the share price goes up or down by a large amount during the life of the options:

• One investor bought 400 lots of the November 425p puts and calls at 50p each to set up a straddle which would be profitable if the underlying shares move out of a small trading range.

2. a situation where someone buys financials or Commodities Futures with different delivery dates:

• Straddle investments, where an investor reduces risk by buying a contract of one month and selling the contract of another, are popular with producers and consumers of commodities.

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   An option strategy involving one call and one put with the same strike and same expiry date. The strategy allows the buyer to take advantage of large price movements in either direction, by exercising the call in a rising market and the put in a falling market. The risk is that prices move only slightly and the change is not enough to cover the costs of the two options.

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straddle UK US /ˈstrædl/ noun [C] (also strangle) FINANCE, STOCK MARKET

► a situation in which an investor buys or sells both a call option (= agreement to buy shares at a fixed price before or on a fixed date) and a put option (= agreement to sell shares at an agreed price before or on a particular date): »

There is a lower level of initial margin on straddle positions because the daily price movements are likely to be lower than in the individual contracts.

● long straddle — Cf. long straddle

● short straddle — Cf. short straddle