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7

PDE Daily Chart – Short Straddle Example #1

Filed Under Trading Articles 

Source: Quote.com®

 

NOTES ON PRIDE INTERNATIONAL (PDE)
Short Straddle

1. Pride Int’l breaks out of a trading range in Jan 2005 and proceeds to trade up around the $27 level. After trading back down to around $20 (in a style that would also be perfect for a sell-write) the stock trades back up to the $25 range.

2. At this price, Pride begins to consolidate in this $25 area. This consolidation begins around min-June and extends through August and into September. This consolidation around the $25 stock price presents an excellent opportunity for premium collection via the short straddle.

3. By selling both the 25 strike call and put, which are both at-the-money options, you will have the opportunity to capture a large amount of premium.

4. The straddle will set up breakevens both above and below the strike for proceeds brought in by the sale of the straddle. If the stock closes near the 25 strike at expiration, the stock will more than likely finish inside of the breakeven parameters profiting the straddle seller.

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