Managing Long Straddle

Question

Am a beginner in option trading. Recently started learning option strategies. The long straddle looked particularly appealing. However to make a profit the underlying needs to move, lets say around 2%. Is there any technique by which we can reduce this gap down to 0.5% range?

Answer 1

A long straddle gains value if implied volatility increases and/or the underlying moves away from the strike price. It loses value due to double sided time decay. Those are its dynamics.

You can reduce the 2% threshold by:

• using lower IV options (less chance of a big move)
• buying nearer term expiries (disadvantage of higher rate of theta decay)
• utilizing defined risk strategies that have a cap (butterfly, iron condor)

Answer 2

Thank you Bob for quick response. Tried and compared different strategies and came up with this one. Please comment.