Strategic trade
Trade view / 22 August 2016 at 13:50 GMT

#SaxoStrats: Expect volatility in the S&P 500

Head of Futures & Listed Options / Saxo Bank

With the US election approaching in November as the UK continues to negotiate a potentially difficult divorce from the European Union, we can expect a bit more volatility in the SPY over the coming months.

Let’s buy the Nov16 218 Straddle (Expiry November 18) to benefit from a move – either up or down.

S&P 500
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Source: Saxo Bank 

Entry: buy SPY Nov16 218 straddle at $10.62
buy SPY Nov16 218 Call at $4.95
& buy SPY Nov16 218 Put at $5.67

Maximum profit at expiry is unlimited

By having long positions in both call and put options, straddles can achieve large profits no matter which way the underlying stock price heads, provided the move is strong enough.

Maximum profit at expiry is achieved when the (underlying price > Strike Price of Long Call + Premium Paid or Price Underlying <Strike Price of Long Put – Premium Paid).

Breakeven Points at expiry

There are 2 breakeven points at expiry:
upper breakeven point = Strike Price of Long Call + Premium
= 218 + 10.62
= 228.62 
lower breakeven point = Strike Price of Long Put - Premium
= 218 – 10.62
= 207.68

Maximum Loss

Maximum loss occurs when price of underlying = Strike Price of Straddle
Maximum loss is limited to premium paid
Maximum loss is $10.62 or $1,062 per Straddle
Target at expiry: well above 228.62 or well below 207.68
Time horizon: 88 days

— Edited by Michael McKenna

For more on contract options click here.

Non-independent investment research disclaimer applies. Read more
23 August
chi2015 chi2015
It would be interesting to see this using futures as well
23 August
Patrice Henault Patrice Henault
you can't
First on Futures exchanges the rule is FIFO (First In First Out) meaning your long position is netted by your short so you are flat. secondly even if you were able to be long and short at the same time the profit you would make on one side would be offset by the loss you take on the other side.
only options allow that type of strategy.
23 August
Patrice Henault Patrice Henault
But if you are talking about Futures Options you can definitely apply the same strategy using E-mini S&P 500 options traded on CME. you woulde in that case buy the December 2016 2180 Straddle at $126 or $126 X $50 (Tick value) = $6,300 for one Straddle.
25 August
m.krysiak m.krysiak
What is the product name in saxo platform for options you presented above ? I only found spx on opra , but quotation is f.ex. 49.50 $ than 4,95.
25 August
m.krysiak m.krysiak
oh, its etf
25 August
Patrice Henault Patrice Henault
on the option chain you type SPY
then you will have the SPDR S&P 500 ETF Trust option chain


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