Identifier: C4T6L1 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Build two-sided movement exposures with explicit legs. 2. Calculate both expiry breakevens. 3. Stress short-option tails and event repricing.

Prerequisite: C4T5L4 and the completed earlier classes. Foundation: Stock Market School.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A straddle uses a call and put with the same strike and expiry; a strangle uses a lower-strike put and higher-strike call. Buying both purchases movement exposure in either direction; selling both accepts losses from sufficiently large moves. A strangle can cost less because a wider quiet zone must be crossed before intrinsic value emerges. Neither structure earns merely because the investor correctly predicted that news would arrive. The realized move must be judged against premium, time and executable prices.

Price and return drivers

Long straddle payoff per unit = abs(S−K). Long strangle payoff = max(low K−S,0)+max(S−high K,0). Deduct both premiums and costs for profit; reverse the payoff sign and add received premiums for shorts. The long structures lose no more than paid premiums and charges. The short structures have an unbounded upper-side call loss; the put side has a large finite loss for a nonnegative underlying. Collateral does not cap those obligations.

Worked case

One synthetic long straddle: +1 K100 call at6 and +1 K100 put at5, multiplier100, total charges40. Debit1100; maximum loss1140; expiry breakevens88.60 and111.40. One long strangle: +1 K90 put at3 and +1 K110 call at3, debit600, charges40; breakevens83.60 and116.40. At expiryS70,100,130 the long straddle nets+1860,−1140,+1860; long strangle+1360,−640,+1360. Separate shorts at the same premiums and charges yield straddle−1940,+1060,−1940; strangle−1440,+560,−1440. Equal quote-side premiums are synthetic symmetry assumptions, not realistic guaranteed two-way fills.

Adverse case

Before expiry, event resolution leaves a supplied combined straddle sale bid8: the long realizes800−1100−40=−340 even if the underlying moved somewhat. A short straddle close ask9 produces1100−900−40=160. These are different quote sides and scenarios, not arbitrage. At expiryS0 the short straddle loses8940; atS200 it also loses8940, and still higher prices increase the call loss without limit. A large move can exhaust collateral before the intended exit.

Practical use

Quote both legs on the correct side and verify the combined collateral/funding obligation for shorts. A high combined premium does not justify an uncovered tail.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use long movement structures when a paid loss budget and a sufficiently large realized or implied repricing thesis are explicit. Use short movement structures only with fully budgeted tail and cash risks; a high premium alone is insufficient. Decline an uncovered short straddle under a finite maximum-loss mandate. A defined-risk winged structure can limit terminal loss but adds legs, costs and settlement risks. Compare all choices with doing nothing through the event.

Practice and references

Exercise: long strangle +1 putK80 premium2 and +1 callK120 premium3, multiplier100, fees30. Solution: Total loss budget530. Breakevens74.70 and125.30. AtS70, payoff1000, net470; atS100 net−530; atS135 payoff1500, net970. Expiry breakevens do not determine today’s sale value.

Takeaway: Long movement structures need enough movement to recover both premiums; short structures retain severe or unbounded tails. Reference links: product card, formula; glossary: Straddle; Strangle; Short volatility. Next: C4T6L2. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide