The same bet as a straddle, with two spread-out strikes: a put below the price, a call above. Cheaper to enter, but it takes a wider move to pay off.
1 contract = 100 shares. All values are per share unless otherwise noted.
A move expected well beyond the stock's usual range. Both options being out of the money, they cost less than a straddle.
A moderate-move hypothesis: between the two strikes, both legs expire worthless and the loss is total — over a far wider zone than a straddle's.
Two legs BOUGHT, same expiry, different strikes: • a put below spot; • a call above. Between the two strikes, neither has value at expiry: this is a ZONE of maximum loss, not a single point as in a straddle. Breakevens: put strike − total outlay, and call strike + total outlay.
Stock at $100. Buy the 95 put at $2 and the 105 call at $2. Outlay: $4 × 100 = $400. • Stock between $95 and $105 → full $400 loss, wherever it lands in that corridor. • Stock at $91 or $109 → breakevens. • Stock at $80 → gain = (15 − 4) × 100 = $1,100. • Stock at $130 → gain = (25 − 4) × 100 = $2,100. Against the $800 straddle, the outlay is half — but the losing zone runs from $91 to $109 instead of $92 to $108, and the loss inside it is total.
"Cheaper" reads instinctively as "less risky". Here it is the opposite: the outlay is smaller, but the chance of losing all of it is higher, because both options start out of the money and an ordinary move is not enough to bring them back. Out-of-the-money options are also the most sensitive to implied volatility: a drop in it drains them faster than at-the-money options.
Options are high-risk derivative products. Losses can exceed the capital initially committed (particularly for uncovered short positions). Polaris provides educational content only — this is not investment advice. Consult a registered advisor (AMF) before any decision and make sure you have the appropriate level of approval from your broker.