Long Straddle Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to buy long straddles and use Barchart to get the most out of the strategy.

What Is A Long Straddle?

A long straddle is an options strategy in which the trader buys a call and a put for the same underlying asset with the same strike price and expiration date. The goal of a long straddle is to profit off of an asset's significant price movement.

Long Straddle Options Strategy:

• Buys Call & Put: Same underlying asset, strike price, and expiration.
• Profit Goal: Capitalize on significant price movement.
• Neutral Bias: Profits whether price rises or falls.
• Risk: Limited to the premium paid.

Long Straddle Strategy:

• Long Call & Put: Same asset, strike, and expiration.
• Profit: From significant price movement.

If the option is in the money before expiration, investors can sell it to realize a profit, and is often preferred if there is still extrinsic value left over, as selling the option can often yield a higher profit than exercising it. Extrinsic value is what someone pays for the options' potential future movement, over and above the amount that it's in the money.

Extrinsic Value

• Adds value to the option
• Represents future movement potential
• Above the "in the money" amount

The long straddle is preferred by traders who anticipate a big price move but are unsure of the direction. The trade profits when the underlying asset's price moves up or down and is theoretically unlimited on the upside and can be significant on the downside or until the asset price hits zero.

• Long straddle for big moves
• Profits with price movement
• Unlimited upside profit potential
• Significant downside profit possible

The maximum loss happens if the asset's price trades precisely at the strike price at expiration, which means both options expire worthless. The loss is limited to the premium paid to buy the call and put.

• Maximum loss at the strike price
• Occurs if stock closes there
• Loss limited to paid premiums

Trade Examples

Let's use Barchart to look for long straddles.

Screening The Market For Long Straddle Trades

If you want to try out the strategy yourself, Barchart's Long Straddle Option Screener gives you the edge you need to increase your chances of profitability. Plus, it's also super easy to use.

To get to the Long Straddle Options Screener, click Options at the top of the page, then click Long Straddle.

You will be brought to a results page with all the relevant details you need to kick off your long straddle trade.

These include the strike price, premiums, breakeven points, max loss, and, most importantly, the probability of profit.

The probability of profit is my favorite metric, as it estimates the likelihood that the trade will be profitable, meaning the underlying asset's price will move above or below the breakeven points (in either direction) by at least one cent by expiration. So I recommend giving this consideration when trading long straddles.

Now, let's look at how you can further customize your trades.

Example With Filters/Screening

On the results page, click on Set Filters, and you will be brought to the default filters for long trades. Different option trading strategies have different default filters, and this one is tuned so that traders can maximize their chances of profiting.

Of course, if you want to add or remove filters, you simply need to click in the add a filter field and type in the filter you'd like.

Alternatively, you can click the dropdown below and choose what you like. Barchart's Options Screener works with its Stock Screener, so you can choose various filters based on your underlying asset, too.

From the screener click on See Results then arrange these results based on the column headers by simply clicking on them. My results are already arranged by highest to lowest probability of profit because I usually sort using it.

By the way, you can also save your screener to reuse it later, and more than that, you can have Barchart email you at a specified time with your trades.

Now, onto the examples. Since long straddles usually have about a 50% chance of profitability, the trade for 3M (MMM) looks very promising to me.

For this example, we'll be using 3M, trading at $124.17 at the time of the screen. In this trade, you'll buy a call option and a put option at the $125 strike, for a total premium of $7.50 or $750 per contract when multiplied by 100 for every long straddle. Both options expire on September 20, 2024.

Now, let's see how this plays out:

Long Straddle Breakeven Prices

First, you'll want to know the breakeven prices for your long straddle. To get the breakeven prices, simply add and subtract the premium from the strike price to get both values on the upside and downside. For this trade, it will be $132.50 for the upside and $117.50 for the downside. Your trade will only start to profit once the 3M's price crosses above these price points.

$125 + $7.50 = $132.50
$125 - $7.50 = $117.50

Upward Price Movement (Profit from Long Call)

Now, let's say that 3M's stock price has risen to $150 per share on September 10. That means your long call is now in the money by $25. This is also your gross profit, but remember you paid $7.50 in premium you paid to enter the trade. So, if do you decide to exercise the call, after subtracting the $7.50 premium, your net profit per share would be $17.50 or $1,750 per contract.

MMM Stock Trading Price: $150.00
Intrinsic value: $25.00
Premium paid: -$7.50
Net profit: $1,750 per contract

($150 - $132.50) * 100 = $1,750

However, since the option still has 10 days left before expiration, other people might be willing to buy your $125-strike 3M call for more than its intrinsic value. So, let's say you check the options chain, and you see the $125 strike call is now worth $30. In this case, you can enter a sell-to-close order for $30 to crystalize your profit. Remember that thanks to theta, the price of your option loses value the closer you are to expiration. And the closer your option is to expiration, the faster the premium drops.

• 09/20 MMM $125 Call Premium: $30.00
• Sell the Call Option
• Profit $22.50 per share
• $30.00 - $7.50) * 100 = $2,250/contract

Downward Price Movement (Profit from Long Put)

Alternatively, if 3M's stock price drops to, say, $110 by September 10, you can exercise your long put instead and net $7.50 per share or $750 total for every long straddle trade you bought.

MMM Stock at $110 on Sept 10

• Breakeven Price (Downside): $117.50
• MMM Stock Trading Price: $110.00
• Profit: $7.50 per share or $750 per contract.

And like with the long call, you can sell the long put for more instead if the option still has time value remaining.

Maximum Loss Condition

On the other hand, if 3M's stock trading price is exactly the strike price on September 20, 2024, the long straddle enters its maximum loss condition. The maximum loss is limited to what you paid for at the start of the trade, which is $7.50 or $750 per contract. This is the total cost of entering the long straddle, and no further losses can occur beyond this point.

Profit/Loss Across Different Price Points

For a better understanding of how much a long straddle can make, or lose across different price points, here's a table.

As you can see here, as the stock moves away from its breakeven points, you start to make a profit. The trade is more profitable the further it moves away from those points. The maximum loss condition happens when both options expire worthless, and that'll happen only if the stock trades at exactly the same as the strike price.

Screening For Long Straddles On Specific Assets

I showed you how Barchart's Options Screener searches for potential trades in the entire stock market. You can also look for long straddle trades using a specific asset.

To do that, visit Barchart.com, search for the asset, which takes you to the Quote Overview page for the asset, and then go to the left-hand panel and look for Straddles and Strangles. Click on that, and you'll be brought to the results page for long straddles. From there, you can filter using the column headers, change the expiration dates, or enter a specific strike price.

You can also screen your selection further, for a more granular view. It's that simple.

Pros and Cons

Long straddles have several advantages, the chief of which is their ability to earn regardless of the asset price moving up or down. They also have massive profit potential if the underlying price moves significantly before or at expiration. Additionally, long straddles are perfect for volatile trading environments and have well-defined risks limited to the premium paid upfront.

• Flexible Directional Bias
• Significant Profit Potential
• Captures Volatility
• Defined Risk

However, its downsides include high entry costs since you'll need to buy two options at the start of the trade. As a result, the underlying asset's price movement needs to be big enough for you to break even. Long straddles are also sensitive to time decay, as both trade legs lose value the closer they get to expiration. Low volatility can also affect profitability. And, of course, since this trade requires two option legs, it's a bit more complex to manage. This is because you'll need to monitor two positions simultaneously and make decisions on whether to close one leg, adjust the trade, or let it expire worthless.

• High Initial Cost
• Elevated Breakeven Price
• Time Decay (Theta)
• Limited Profit in Low Volatility
• Complex Management

Conclusion

Long straddles can be an effective strategy when you have reason to believe that your chosen asset will experience a significant price movement before expiration. However, they can be expensive and more complex than single-leg trades.

For that reason, and to maximize your chances of profit, use the Long Straddle Option Screener, and remember to do your due diligence.

If you need more information about long straddles or other trading strategies, visit the Barchart Options Learning Center.