Is It Possible to Engage in a Commodities Futures Straddle?
Friday, December 26th, 2008 at
6:27 am
J D asked:
…Or will the buying and selling of contracts immediately cancel out the straddle and essentially result in the closing-out of the contracts?
…Or will the buying and selling of contracts immediately cancel out the straddle and essentially result in the closing-out of the contracts?
Tagged with: Cancel • Commodities Futures • Straddle
Filed under: Commodity Trading
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A straddle by necessity involves you doing a Put and Call at different prices on the same stock.
Since futures contracts only have 1 price, you can’t do it.
Taking a long position and a short position will simply close your position totally.
The premise of the options straddle is that when the stock goes up or down, you make a return on the correct bet and lose only the Premium on the incorrect bet.
Futures have no Premium so the loss on the Short side would be equal to the gain on the Long side and vice versa, so that strategy does not apply.
you can do a ‘Straddled Spread’ buy going Long April, Short May. But Then you’ve added a time risk, so its not the same thing, you’re giving one side a greater weight than the other.