Straddle

A straddle (std) can be either of the following:

Long straddle

This means you are buying the straddle. This involves buying a call option (long call) and buying a put option (long put), both with the same strike, expiry date and notional.

Short straddle

This means you are selling the straddle. This involves selling a call option (short call) and selling a put option (long put), both with the same strike, expiry date and notional.

The most commonly traded straddle is the ATMF straddle, whereby both the call and the put options have a strike equal to the forward rate.

Volatility quotes for the ATMF straddle are used as benchmarks to create a volatility surface.

Why use a straddle?

A straddle is the basic method of trading volatility which is increasingly regarded as an asset class in its own right. A buyer of a straddle is simply looking for volatility; it does not matter in which direction.

Pricing a straddle in SDX Commodities & Energy

When pricing a straddle note the following:

You can only enter it automatically in the Single Option page. To price a straddle in the Portfolio page, you need to build it manually out of its individual components.

To enter an ATMF straddle, in the Strike field enter ATMF.