Chicken Trade/straddle
I was at a better trades seminar and the guy talked about chicken trades or other known as a straddle where u buy a call and a put...now if a stock that was 30 dollars went up 1 dollar and i bought a call and a put option which is 100 shares, the put would expire and the call would go up what i lost on the put right?? and if it went up more i would make money on the call and i couldnt lose anymore on the put, am i correct as i know nothing about options. thanks guys!!
Lets say you buy both a 30 call and a 30 put for 1.00 each. For the put to be profitable the stock price would have to go to 28.99 and then to make up for the call premium it would have to be $1 cheaper or 27.99. On the other side for the call to be profitable the stock price would have to be 31.01 and then another dollar to make up for the put premium or 32.01. So your straddle is 28 to 32, anything inside this and you lose, anything outside you win. If you want to play the volatility you buy the straddle if you think the price is likely to trade flat you sell it and hope to pocket the premiums.
What I'd like to know is how do I go about getting some of these back-dated options that are so popular lately? :wink:
More seriously; Do you have any insight on taking a long or short position based on the open interest in at the money calls vs puts?
You can do a straddle for any price. You're just buying a put and call for the same stock and price. Just add the premiums together and get the total, then add and subtract that number from the strike price to get your break even points. Below the strike minus the total premium and above the strike plus the total premium and your making money.