Long Straddle

With a straddle, you're betting on volatility, not direction. If you knew which direction the market would move, you'd just buy a call or put. But when you expect a big move without knowing the direction (like before earnings), a straddle lets you profit either way. The cost of the second option is the price of not having to predict direction.

This is the main risk. If the underlying stays near the strike price, both options lose value from time decay. At expiration, if the price equals the strike, both options expire worthless and you lose the entire premium. This is why straddles should only be used when you expect significant movement.

Yes, a strangle uses out-of-the-money options (call above current price, put below) which costs less than a straddle. However, strangles have wider breakevens, meaning the market needs to move more for you to profit. Strangles are cheaper but require larger moves.

No. With a long straddle, your maximum loss is limited to the total premium paid for both options. This makes it a defined-risk strategy. However, you can lose 100% of that premium if the underlying doesn't move enough.

It depends on your thesis. For event plays (earnings, MAS), you typically exit shortly after the event - either taking profit from the move or cutting losses from IV crush. Don't hold straddles past 21 DTE if no move has occurred, as theta decay accelerates significantly.

IV crush is the rapid decline in implied volatility after an anticipated event (like earnings) passes. Before the event, uncertainty is high, so options are expensive. After the event, uncertainty resolves, and option prices drop - sometimes 20-40% overnight. Even if price moves in your favor, the IV crush can result in a loss if the move wasn't large enough.

It depends on your strategy. Selling BEFORE the event captures IV expansion but misses the actual price move. Selling AFTER the event captures any price move but faces IV crush. Many traders sell before if IV has expanded significantly, locking in vega profits without event risk. Others hold through if they believe the move will exceed the IV crush.

Compare the straddle cost to historical moves. If the straddle implies a 3% move but the stock historically moves 5% on similar events, it may be underpriced. Also check IV rank - if IV is at the 20th percentile, options are cheap historically. Use both metrics to assess fair value.

If one side becomes profitable, you can sell that leg to lock in gains while keeping the other leg as a low-cost position. For example, if the call doubles in value, sell it to recover your cost, and keep the put as a 'free' lottery ticket. This removes downside risk while maintaining upside potential.

SGX options have lower liquidity, wider bid-ask spreads, and fewer strike/expiration choices. This means you may pay more to enter and exit straddles, reducing potential profits. US markets offer tighter spreads and more frequent expirations, making straddle trading more efficient.

Gamma scalping involves maintaining delta neutrality as the underlying moves. When STI rises and your delta becomes positive, sell CFDs or futures to neutralize. When STI falls and delta goes negative, buy CFDs. The goal is to profit from oscillation while offsetting theta decay. In Singapore, use CFDs (available from various brokers) rather than the less liquid SGX futures for more frequent rebalancing.

Compare IV across different expirations. Normal term structure (contango) has increasing IV for longer dates. Before events, front-month IV rises faster, creating backwardation. For straddles: buy when front-month IV is relatively low (contango), and be cautious when it's elevated (backwardation). After events, term structure normalizes - this is when IV crush hurts front-month straddles most.

Straddle cost directly determines your breakeven range. Cheaper straddles (low IV) have narrower breakeven ranges, theoretically increasing probability of profit. However, IV is usually low when expected moves are small. The market is generally efficient at pricing expected moves. Your edge comes from either superior event forecasting or timing IV expansion/contraction better than the market.

If you develop a directional bias, you can: (1) Sell one leg - if bearish, sell the call and keep the put, converting to a synthetic long put. (2) Add to one side - buy additional puts if bearish. (3) Roll one leg - move the call to a higher strike if bearish. (4) Close entirely and enter a directional position. The key is recognizing when your thesis has changed from 'big move, direction unknown' to having a directional view.

Long straddles provide convex exposure - they have limited loss but potentially large gains from volatility spikes. This makes them portfolio diversifiers during market stress (when correlations spike and volatility explodes). Allocating 5-10% to long volatility strategies can improve risk-adjusted returns. However, the theta drag means they reduce returns during calm markets, so size appropriately.