Unit 2 · Level 3 · Event trading
Straddles & strangles
Buy a call AND a put and you no longer care which way price goes, only that it GOES. That's the long straddle (both at-the-money) and its cheaper cousin the strangle (both out-of-the-money). Beautiful idea, honest catch: you're paying two premiums, and around events those premiums are inflated. The move must beat everything you paid.
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What you get asked
Straddle vs strangle: the difference is…
Same bet on movement, different price tag: the strangle costs less but needs a bigger move before either wing pays.
A long straddle makes money when…
Direction-neutral, but not effort-neutral: the move has to out-run two premiums plus the IV you paid up for.
Match the term to its role in movement bets
One family, one law: the market must move more than the market expected, or the buyer of movement loses.
Buying a straddle right before earnings means paying peak ___, so the move must then beat an inflated price.
The event bump from Unit 1 is now YOUR cost basis. Everyone knows earnings are coming, and that knowledge is already in the premium.
The honest one: why do many pre-earnings straddle buyers lose even when the stock DOES move?
A 5% move sounds great until the ±7% you paid for deflates around you. Vol crush taxes the buyer the instant uncertainty dies. You met this beast in the Trading course's League 5; now you can price it. 🐜
The rest of this unit
Expected moves, straddles and binary gaps: trading the calendar like a pro.