Long Straddle

You are paying for TWO options - a call and a put. Only one can be in-the-money at expiration. The other expires worthless. So the winning option must make enough to cover both premiums. That is why you need a big move.

If you have a directional opinion, a single call (or put) is more capital efficient. Straddles are for when you expect a big move but do not know the direction. If you are bullish, a call alone or call spread usually makes more sense.

No, your maximum loss is exactly the premium paid - nothing more. This is a defined-risk strategy. If both options expire worthless, you lose 100% of premium but never more.

That is actually good! You can take profits early if the stock moves enough. You do not have to wait for the catalyst. If the stock moves 8% before earnings and your breakeven was 5%, you can close for profit immediately.

Two reasons: 1) The move was not big enough to overcome the premium paid. 2) IV crush - after events, IV drops dramatically, destroying option value even if you were right on direction.

It depends on your thesis. Exit BEFORE if you are playing IV expansion and do not want event risk. Exit AFTER if you believe the actual move will exceed implied move. Many traders take partial profits before and hold partial through.

Compare implied move to historical moves. If the straddle implies a 5% move but the stock has only averaged 3% on past earnings, it is likely overpriced. Also check IV Rank - above 50% suggests expensive options.

Sometimes. If the stock moved but not enough, you can sell the losing leg and hold the winner for potential continued movement. Or roll to a later expiration for more time. But often, accepting the loss and moving on is best.

Typically 1-5 days before. Too early and you pay more theta. Too late and IV expansion may have already occurred. Monitor IV leading up to earnings and enter when IV seems to have bottomed.

Dividends are priced into options, so no direct impact. However, your call may be assigned early (before ex-date) if deeply ITM and dividend exceeds time value. Puts are not affected by early assignment risk from dividends.

Gamma scalping outperforms when realized volatility exceeds implied volatility and the stock oscillates without trending. If the stock trends strongly in one direction, simply holding beats scalping. Scalping is essentially a bet on mean reversion.

Allocate 1-3% of portfolio to long straddles or strangles on broad indices (SPY, QQQ). This provides gamma exposure that profits from large moves in either direction. Rebalance quarterly or after major moves.

Theoretically, straddle price is approximately 0.8 x Stock Price x IV x square root of T. Realized vol determines actual P/L. If realized vol > implied vol used in pricing, long straddle profits. If realized < implied, short straddle profits.

Market makers price based on: 1) Current IV surface and skew, 2) Their inventory and hedging needs, 3) Expected gamma P/L from hedging, 4) Event risk pricing if catalyst is known. They generally profit from bid-ask spread and managing gamma.

Approximately, yes. Using put-call parity: Long Straddle is approximately 2x ATM Call - 100 shares + present value of strike. Or via variance swaps for pure vol exposure. But options provide the most direct straddle exposure.