Profit and Loss Calculations for Straddles and Combinations

What this video covers

• How a long straddle uses one call and one put with the same strike and expiration, and why total premiums paid become the maximum loss
• The exact breakeven formulas for straddles: strike price plus or minus total premiums, and why the stock must clear a breakeven to profit
• Why a short straddle writer has unlimited maximum loss on the upside, even though breakeven math stays identical to the long position
• How combinations (strangles) differ by using two different strikes, with upside breakeven at the call strike plus premiums and downside breakeven at the put strike minus premiums
• Why combinations cost less than straddles but require a larger stock move to reach profitability
• The three-step sequence for testing profitability at a given stock price: calculate breakevens, compare stock price to the gap, identify which side profits
• Common exam traps: one strike versus two strikes, shared breakevens for buyer and writer, and the difference between any stock move versus a profitable move