Long Straddle Screener Results For January 20th

A long straddle is an advanced options strategy used when a trader is seeking to profit from a big move in either direction and / or an increase in implied volatility.

To execute the strategy, a trader would buy a call and a put with the following conditions:

• Both options must use the same underlying stock
• Both options must have the same expiration
• Both options must have the same strike price

Since it involves having to buy both a call and a put, the trader must pay two premiums up-front, which also happens to be the maximum possible loss.

The potential profit is theoretically unlimited, although the trade will lose money each day through time decay if a big move does not occur.

The position means you will start with a net debit and only profit when the underlying stock rises above the upper break-even point or falls below the lower break-even point.

Profits can be made with a smaller price move if the move happens early in the trade.

Let’s take a look at Barchart’s Long Straddle Screener for January 20th. I have added a filer for Market Cap above 40b to remove small capitalization stocks.

The screener shows some interesting long straddle trades on popular stocks such as KO, T, WMT, JPM, MRK, RTX, UBER, NVDA, TSLA and AMZN. Let’s walk through a couple of examples.

KO Long Straddle Example

Let’s take a look at the first line item – a long straddle on KO.

Using the February 17th expiry, the trade would involve buying the 60 strike call and the 60 strike put. The premium paid for the trade would be $283 which is also the maximum loss. The maximum profit is theoretically unlimited. The lower breakeven price is 57.17 and the upper breakeven price is 62.83. 

The premium paid is equal to 4.74% and the probability of success is estimated at 45.4%.

The Barchart Technical Opinion rating is an 8% Sell with a Weakening short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

The market is approaching oversold territory. Be watchful of a trend reversal.

Implied volatility is currently 20.93% compared to a twelve-month low of 15.06% and a high of 28.93%.

Walmart Long Straddle Example

Let’s take a look at the third line item, a long straddle on Walmart.

Using the February 17th expiry, the trade would involve buying the 140 strike call and the 140 strike put. The premium paid for the trade would be $599 which is also the maximum loss. The maximum profit is theoretically unlimited. The lower breakeven price is 134.01 and the upper breakeven price is 145.99. 

The premium paid is equal to 4.31% and the probability of success is estimated at 44.8%.

The Barchart Technical Opinion rating is a 24% Buy with a Weakest short term outlook on maintaining the current direction.

Implied volatility is currently 20.24% compared to a twelve-month low of 15.25% and a high of 33.80%.

JP Morgan Long Straddle Example

Let’s take a look at one final straddle, the fourth line item – a long straddle on JPM.

Using the March 17th 20th expiry, the trade would involve buying the 135 strike call and the 135 strike put. The premium paid for the trade would be $1,025 which is also the maximum loss. The maximum profit is theoretically unlimited. The lower breakeven price is 124.75 and the upper breakeven price is 145.25. 

The premium received is equal to 7.61% which is slightly higher than the first two example because of the greater time to expiry. The probability of success is estimated at 44.5%.

The Barchart Technical Opinion rating is an 88% Buy with an Average short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

Implied volatility is currently 23.38% compared to a twelve-month low of 20.14% and a high of 44.62%.

Mitigating Risk

Long straddles can lose money fairly quickly if the stock stay flat, and / or if implied volatility drops.

Position sizing is important so that a large loss does not cause more than a 1-2% loss in total portfolio value. Another good rule of thumb is a 20-30% stop loss.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

• Stocks Close Moderately Lower on Economic Growth Concerns
• Debt Ceiling will be a Wet Blanket Over the Stock Market Until June’s X-Date
• Economic Concerns and Debt Ceiling Risk Weigh on Stocks
• An Uptick in Options Volume for Zoetis (ZTS) Points to a Potential Opportunity