The straddle consists of buying an at-the-money (ATM) put and an ATM call. This means the $10.20 strike price. I prefer to use short-dated options, as less time premium is spent on the options. Today, the short-dated March expiration November soybean put $10.20 strike is at 13 1/2 cents. The same expiration and strike call is at 16 1/2 cents. The total cost and risk of this strategy is 30 cents. Maximum profits are unlimited.
Now, this may seem like an expensive strategy. To lower the entry cost, a trader may choose to sell an out-of-the-money (OTM) put and call to help finance the purchase. When adding this leg of the strategy, keep in mind that the profit potential will be defined. Also, look to sell options above (in the case of calls) or below (in the case of puts) the target breakout prices mentioned above. In this example, I would look at selling a short-dated March expiration November soybean $10.50 strike call and a short-dated March expiration November soybean $9.90 put. These are trading at 5 1/2 and 4 1/2 cents; respectively. Your total cost would now be 20 cents and your maximum profit would be 21 cents on the upside and 19 cents on the downside (the differences between the strikes minus the loss on the put on an upside move or call on a downside move).
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