TeachMeFinance.com - explain Straddle
Straddle -- A straddle is like a spread a double privilege, a
put and a call combined, but only one price is named in it.
The stock may be called (called for) or put (delivered) at
tfrs price. The stock must go up or down more than the
amount paid for the straddle before there is a profit in it.
Illustration : A stock is selling at 100 and a straddle on 100
shares is bought at this price, for vvhich 5 per cent ($500) is
paid. The stock, therefore, must go above 105 or below 95
before there is a profit to the purchaser of the straddle.
If a dividend becomes due on a stock during the pendency
of a straddle on it the dividend goes to the holder of the
straddle if he elects to receive and pay for the stock, but it goes to the seller of the straddle if the stock is put (delivered)
to him. A dividend always goes with the stock.
For additional information see Privilege.
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