How to make money in a static market
Time decay profile - showing how premium diminishes in an accelerated manner as an option nears its expiry.
A straddle is very similar to a strangle but with one major difference - when selling the 2 legs (premiums) you sell both a Call and a Put that are ‘at-the-money’. In the example we used above and continuing to assume that you expect the FTSE to remain within the 5200 - 6000 range, you would sell in the straddle case the November 5500 Call & Put - i.e. effectively the level where the FTSE currently is stationed at. Of course, as you are selling at-the-money options then the premiums are that much higher.
The profile and premium receipt would be as follows Sell the November 5500 Call for say 170 Sell the November 5500 Put for say 190
July 2012 | www.financial-spread-betting.com | 91