Long Straddle

You're not betting on direction - you're betting on movement. The call profits if the underlying rises significantly, the put profits if it falls significantly. You don't care which direction, only that a big move happens. The losing side becomes worthless, but the winning side can more than make up for it.

The underlying must move beyond your breakeven points. These are: Strike + Total Premium (upside) and Strike - Total Premium (downside). For a £230 straddle at 7,750 strike, FTSE must be above 7,980 or below 7,520 at expiration to profit.

You lose money, but less than the maximum loss. For example, if your breakevens are 7,520 and 7,980, and FTSE expires at 7,600, your put is worth £150 (7,750 - 7,600). If you paid £230, you lose £80. Not max loss, but still a loss.

Both options you own lose value every day due to time decay. Since you own two ATM options (which have the highest theta), your position decays faster than a single option. You're racing against time - the move needs to happen before theta erodes your premium.

A common target is 50-100% of the premium paid. If you paid £230, aim to close when the position is worth £345-460. Don't get greedy - big moves can reverse. Taking profit ensures you don't give back gains.

Enter well before the event (7-10 days) when IV is still rising. This way you can profit from IV expansion. You can also exit just before the announcement to capture vega profit without event risk. If you hold through, recognize that IV will drop and you need a large enough move to offset.

For specific events with known dates, use the expiration just after the event (weekly if available). For breakout plays without specific timing, use monthly options 45-60 DTE for more time. Weeklies have extreme theta decay.

Consider closing that leg to lock in profit. If your call is up 200% after a rally, sell it and keep the put as a 'free' reversal play. This locks in gains while maintaining some exposure.

Use a strangle when: (1) you expect a very large move that makes wider breakevens acceptable, (2) you want lower cost exposure, (3) you're less certain about timing and want to reduce theta decay. Straddles are better when expecting moderate moves or when vega profit is key.

Positive gamma means your position gains delta in the direction of the move. As the underlying moves away from your strike, your profitable side gains delta exponentially while your losing side delta approaches zero. This creates the hockey-stick payoff - profits accelerate as moves get larger.

Monitor your net delta as the underlying moves. When delta becomes significantly positive (underlying rose) or negative (underlying fell), trade the underlying (futures or spread bets) to neutralize. This locks in the profit from the move. If the underlying oscillates, you profit from each swing.

Ideally IV Rank below 20%, acceptable up to 30%. Below 10% is rare but excellent. Above 40% is generally too expensive. Also check IV Percentile and compare implied to historical volatility for a complete picture.

Calculate implied move (straddle price / strike) and compare to expected move (historical event moves). If expected move is 1.5x implied move, you can size up. If expected move equals implied move, size normally. If expected move is less than implied move, reduce size or skip trade.

Leg in when: (1) you have a slight directional lean and want to buy the trend leg first, (2) the underlying is oscillating and you can buy each leg on favorable moves, (3) bid-ask is wide and you can get better fills separately. Package entry is better when IV is spiking and you want exposure immediately.

Look for flat term structure before known events - entry is cheap and structure should steepen (front month IV rise) approaching event. Avoid entering during backwardation (front month already elevated). In contango, front month is cheap but may not have the event premium - consider if the event justifies front month entry.