When trading normal stock options why could you not just use a long straddle strategy and go out and buy a call and a put option with a expiration period of about 3-6 months and be able to consistently profit on the options in any market condition no matter what?
Stock Options Long Straddle
darrell
#2
This is a common first assumption about strangles/straddles.
This will not work because options consider in their price implied volatility (expected move) into the premium.
ie whatever the breakeven would be ie cost of put and call above the call or cost of call and put below the put is the expected movement built into the option pricing. The stock may move up but is not expected to move further than the premium price into the strike of the call or put and will most likely at some point reverse.
If the stock does not move higher than the call strike plus the cost of both the call and the put you will lose money If the stock does not move lower than the put strike plus the cost of both the call and the put you will lose money
The market is very efficient in pricing
Example on MSFT below:
You can see Intro to options under education intro to markets.