Straddles, are they ever profitable?

[sle]

On one side of the long straddle, you don't have theta or any of the greeks to contend with. Every 100 shares of stock is worth 100 deltas. It's a delta neutral set up, with lots of possibilities for adjustments.
Even if your stock fell to $0.00, the delta neutral puts that were purchased at the same time would have you swinging from the chandeliers for joy.

Still don't see how 2 units of "synthetic" straddle is different from 1 unit of regular put+call straddle, since they would give you the same exposure. The only difference, as newwurldmn points out, is that shorting the stock has a difference treatment from margin and funding perspective.

 

[Jones75]

So you are saying that if you buy a regular straddle and stock goes to $0.00 you don't make money but if it goes to $0.00 on a synthetic straddle you make a killing?

Your interpretation of what I said is skewed.

I've been talking about synthetics only. You're talking regular straddles. The example I gave was an extreme only. Bottom line is a long synthetic is far less risky than a traditional straddle…that's my two cents.

 

[syswizard]

I don't recommend the weeklies if your a buyer.

Exactly...so SELL the weekly straddles. The theta is on your side with such a short-term trade.

 

[sle]

Bottom line is a long synthetic is far less risky than a traditional straddle…that's my two cents.

So you are saying that if Bobby buys 2 calls and shorts stock, while Jimmy bought a call and a put, Bobby is somehow better off?

 

[Jones75]

Still don't see how 2 units of "synthetic" straddle is different from 1 unit of regular put+call straddle, since they would give you the same exposure. The only difference, as newwurldmn points out, is that shorting the stock has a difference treatment from margin and funding perspective.

Not sure we are on the same page here:

Long put synthetic straddle:
100 share of stock = 100 deltas
2 ATM puts = 100 deltas

 

[sle]

Exactly...so SELL the weekly straddles. The theta is on your side with such a short-term trade.

Yes, that is definitely true. Risk-free money.

 

[Jones75]

So you are saying that if Bobby buys 2 calls and shorts stock, while Jimmy bought a call and a put, Bobby is somehow better off?

Though I don't like to short stock, but yes, Bobby is better off. Paper trade it.

 

[OddTrader]

Generally, the synthetic ATM straddle will be 1/2 size of a straddle using two .5 delta options instead of the UL.

Long 200s, long four .5 delta puts is equivalent to +2C, +2P ATM straddle.

This is a generality, as there are exceptions.

" Long 200s," +200d
" long four .5 delta puts " -200d

vs

" +2C, " +100d
"+2P ATM " -100d

 

[OddTrader]

So you are saying that if Bobby buys 2 calls and shorts stock, while Jimmy bought a call and a put, Bobby is somehow better off?

" buys 2 calls " +100d
" and shorts stock " -100d

vs

" bought a call " ATM +50d

" and a put " ATM -50d

 

[OddTrader]

Furthermore, futures is linear, i.e. always 100d!

Options is nonlinear. Therefore for buying long 2 ATM options, they can be 100d initially. However they could change to say 120d or 80d, varying to anything between ~0d to ~200d!