I hope everybody can see just the difference in volatility between these two names and therefore, the difference between the straddle prices. That's just a little trick that I use when I'm looking at really high priced stocks or really low priced stocks. Sometimes people look at a $2 stock and 20 cents doesn't feel like such a big move, but then if we make it $20 in our heads, $2 is a big move. In my own mind, I'll make them $20 or $30 because that's how I want to look at them. I do the same thing when I'm looking at stocks that are $2 or $3. If you make it $53.50 cents, and you're more comfortable, which I am, then I think of the straddle as $3.18 cents just because I'm not used to looking at straddles that are $535. You don't have to look at it so it's $535. Whenever I look at a stock that's $535 or a stock that's $5.35, you could just make that stock $53 in your head. Their stocks have been getting crushed because of some alarming news (This example is from when their E-coli incident happened). Chipotle is dealing with some news issues. We can see Apple, the 119 straddle is about $2.25. The exact same amount of time until expiration. I just took Apple and Chipotle, both five days to expiration. Every day that goes by where our straddle doesn't move is hurting our position. Time passing hurts when we are long a straddle. Our downside is whatever we pay for the straddle. We're expecting movement, we're expecting volatility. You want everything to be super, super quiet.īuy a call and buy a put, then we’re long the straddle. When you're short volatility, you just want no movement. If we sold the straddle, we'd want everything just to be quiet. Looking at the column chart above the graph, if we bought the calls and bought the puts, our max loss would be $5 and then we would need it to get under 35 or over 45 in order for us to profit. The volume for the underlying equity gives an indication of the strength of the current market direction, while the open interest for the put or call tells you the number of option contracts that are currently 'open' (not yet liquidated). A lot of times I'll say there's a 10% straddle or 15% straddle, this is all I'm referring to. Options with unusual activity highlight puts and calls for stocks that have a high volume-to-open interest ratio. If they're 250 each, the straddle would be $5.

Whenever we see a straddle (we'll start at the top, right of this chart), stock price 40, this should be 40 strike and 40 strike puts. A straddle is just a great way to get a measure of the volatility that's in the market. The goal of this post is to get everyone comfortable with what a straddle is.

Spy unusual options activity