Account Info
Log Out

Step-by-Step: Options Strategy with Examples

Views 1759Mar 28, 2024

How Can Short Straddle Potentially Profit from Low Volatility: A Case Study of BAC

In previous articles, we introduced the Long Straddle strategy, which can be used when you expect a security's price to make a big move but are not sure of the direction of the price movement.
Today we will introduce a strategy that is applicable when you expect small movement of the price. That is a Short Straddle.
We'll take the unusual activity order of BAC options on April 11, 2023, and look at how this strategy could be used in real trading.

(Please note that the following unusual activity case deconstruction is for speculative analysis purposes only and does not constitute any investment advice or operational recommendation. We can not confirm whether the unusual activity is a Short Straddle order, nor can we confirm the investors' expectations. Investors should not rely on such information as a substitute for their independent judgment or make investment decisions based solely on such information.)

How Can Short Straddle Potentially Profit from Low Volatility: A Case Study of BAC -1
How Can Short Straddle Potentially Profit from Low Volatility: A Case Study of BAC -2

Let's discuss the three possible scenarios with this options strategy.

(Note: All profits and losses below are calculated based on the assumption that you choose to exercise the option at expiration, excluding commissions and other charges. In real trading, you can either exercise your option or close your position before expiration, and the actual profit and loss will vary.)

How Can Short Straddle Potentially Profit from Low Volatility: A Case Study of BAC -3
How Can Short Straddle Potentially Profit from Low Volatility: A Case Study of BAC -4

What's your ideal stop-loss tactics? Feel free to drop a comment and share your thoughts with us!

Risk Statement

All contents such as comments and links posted or shared by users of the community are the opinion of the respective authors only and do not reflect the opinions, views, or positions of Moomoo Financial Inc., Moomoo Technologies, any affiliates, or any employees of MFI, MTI or its affiliates. Please consult with a qualified financial professional for your personal financial planning and tax situations. Please consider that users will have different risk profiles, financial understanding, financial objectives, investment time horizons, and tolerance for potential losses and they should consider these factors when comparing performance, advice, or recommendations from other users. There is no guarantee or assurance that the use of any tools or data provided on the moomoo app will result in investment success or reduce investment risk.

Moomoo is a financial information and trading app offered by Moomoo Technologies Inc. In the U.S., investment products and services on Moomoo are offered by Moomoo Financial Inc., Member FINRA/SIPC.

This article is for educational use only and is not a recommendation of any particular investment strategy. Content is general, strictly for educational purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. All investing involves risks. Any examples provided herein are for illustrative purposes only and not intended to be reflective of results any investor can expect to achieve.

Options trading entails significant risk and is not appropriate for all customers. It is important that investors read the Characteristics and Risks of Standardized Options (https://j.us.moomoo.com/00xBBz) before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request.

Moomoo does not guarantee favorable investment outcomes. The past performance of a security or financial product does not guarantee future results or returns. Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.

Tap Below for a quick experience of the Papertrade tool!

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. It is important that investors read  Characteristics and Risks of Standardized Options before engaging in any options trading strategies.

Read more

Recommended