Scenario

Long Straddle Example

* ignoring transactions and taxes

Stock:

LNKD

Close:

186.58

Returns:

Price @ Expiration

$

140

$

160

$

180

$

200

$

220

$

240

$

260

Return =

Return @

Return @

Call Option

Put Option

Call

Value

$

$

$

$

$

$

$

Put

Value

20

40

60

Exp.

JAN

JAN

15-Jan

$

$

$

$

$

$

$

Strike

Premium

$ 200.00 $

10.95

$ 200.00 $

24.10

108 Days

Cost

Return

(Premium) w/Options

60 $

(35.05)

71.2%

40 $

(35.05)

14.1%

20 $

(35.05)

-42.9%

$

(35.05)

-100.0%

$

(35.05)

-42.9%

$

(35.05)

14.1%

$

(35.05)

71.2%

(40.00 - 35.05)/35.05 =

(20.00 - 35.05)/35.05 =

Breakeven: Option Strike +/- Option Premim

Option

profit

24.95

4.95

(15.05)

(35.05)

(15.05)

4.95

24.95

Stock

profit

(46.58)

(26.58)

(6.58)

13.42

33.42

53.42

73.42

Total

Payoff

13.42

13.42

13.42

13.42

53.42

93.42

133.42

Return on your option strategy.

Intrinsic Value - Option Premium

Option Premium

$160=

$220 =

Return

Stock

-25.0%

-14.2%

-3.5%

7.2%

17.9%

28.6%

39.4%

Long Straddle is Long a

Call and a Put at the same

strike and expiration.

With a Straddle you are not Long or

Short the underlying asset. But your

position's value is determined by the

price of the underlying asset.

14.1%

-42.9%

$

235.05

26%

$

164.95

-11.6%

These are your breakeven boundries. The stock has to go beyond these

prices for your position to cover your cost. This is why Long Straddles

are "Betting on Volatility". In this case, LNKD has to rise by 26% or

drop by -11.6%, just to breakeven.