Module 12 · Spreads, straddles, strangles, butterflies, iron condors · 5 min
Straddle, strangle and combined premium
A call and a put of the same expiry together form a straddle (same strike) or a strangle (different strikes). Their combined premium is the price of the trade.
Combined premium
A CE at 4 and a PE at 4 on strike 100 give a combined premium of 8. The 'Combined chart' in this app's option chain plots exactly this sum.
Long straddle (buy both)
At expiry you profit only below 92 or above 108 (strike +/- combined premium). In between you lose, at most 8 (if the price ends exactly at 100).
Short straddle (sell both)
The mirror image: profit is at most 8, and a big move in either direction keeps increasing the loss. It needs high margin and carries gap and news risk.
Strangle
A strangle uses a higher-strike CE (for example 105) and a lower-strike PE (95). It costs less, but the price must travel further before it pays.
Premium and VWAP
Combined premium falling below its VWAP does not mean a seller is surely in profit: actual P&L depends on their entry premium, lots and charges.
Quiz (3 questions)
1. Strike 200: CE 6, PE 5. Combined premium?
2. Upper breakeven of that long straddle?
3. The biggest risk of a short straddle?
This is for learning only, not advice on any stock or trade.