Straddles, Strangles (Direction-Neutral)

Question 1

What are the steps for a Straddle?

Answer 1

1. Buy at-the-money (ATM) strike puts.

2. Buy ATM strike calls with the same expiration date.

Question 2

What is the most important rule for a Straddle?

Answer 2

Never leave an open ATM option position on either side with less than one month left to expiration. (There is no intrinsic value, only time value.)

Question 3

What are the steps for a Strangle?

Answer 3

1. Buy on-the-money (OTM) strike puts.

2. Buy OTM strike calls with the same expiration date.