Calendar Straddle Explained

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Calendar Straddle

The calendar straddle is implemented by selling a near term straddle while buying a longer term straddle with the intention to profit from the rapid time decay of the near term options sold. It is a limited profit, limited risk strategy entered by the options trader who thinks that the underlying stock price will experience very little volatility in the near term.

Calendar Straddle Construction
Sell Near-Term Straddle
Buy Long-Term Straddle

Limited Profit Potential

Maximum gain for the calendar straddle is earned when the stock is trading at the strike price of the options sold on expiration of the near term straddle. At this price, both the written options expire worthless while the longer term straddle being held will suffer only a small loss due to time decay.

Note that maximum profit is limited only on or before expiry of the near term straddle as the options trader has the option of holding on to the longer term straddle to switch to the long straddle strategy which has unlimited profit potential.

Limited Risk

Maximum loss for the calendar straddle is limited and is incurred when the stock price had moved drastically in either direction on expiration of the near term straddle. At this price, both the near-term straddle sold and the long term straddle held will be almost equal in value. The options trader will typically sell the long term straddle to buy back the near term straddle and thus the maximum loss is equal to the initial debit taken to enter the trade.

Example

In June, an options trader believes that XYZ stock trading at $40 is going to trade sideways over the next month or so. He enters a calendar straddle by buying an OCT 40 call for $200 and an OCT 40 put for $200 while simultaneously writing a JUL 40 call for $100 and a JUL 40 put for $100. The net investment required to implement the strategy is a debit of $200.

On near-term option expiration in July, if the stock is still trading at $40, both the written options will expire worthless while the long call and the long put will still be worth $175 each due to a much slower time decay. Selling this long straddle will net $350 to produce an overall profit of $150 after factoring in the $200 initial debit taken.

If instead, the price of XYZ stock had skyrocketed to $60 in July, the written near term straddle will be worth $2000 since the written put will expire worthless while the written call now has an intrinsic value of $2000. The long straddle will also be worth $2000 because while the put will be too far out-of-the-money to be worth anything, the long call will be very deep in-the-money and be worth $2000 (time value for the long call will be almost nothing since it is very deep in-the-money). As such, the options trader can sell the long straddle to offset the losses from the short straddle. Hence, his overall loss is the $200 from the initial debit taken to enter the trade.

Follow-up Action on Near-Term Expiration

Like all calendar strategies, it is necessary to decide on which follow-up action to take when the near-term options expire. This decision depends heavily on the revised outlook of the underlying stock at that time.

Should the options trader thinks that the underlying volatility will remain low, then he may wish to enter another calendar straddle by writing another near term straddle.

If he thinks that the volatility is likely to increase significantly, he may wish to hold on to the long term straddle to profit from any large price movement that may occur.

However, if the options trader is unsure of what to expect of the underlying, it may be best to take profit (or loss) and move on to evaluate other trading possibilities.

Note: While we have covered the use of this strategy with reference to stock options, the calendar straddle is equally applicable using ETF options, index options as well as options on futures.

Commissions

Commission charges can make a significant impact to overall profit or loss when implementing option spreads strategies. Their effect is even more pronounced for the calendar straddle as there are 4 legs involved in this trade compared to simpler strategies like the vertical spreads which have only 2 legs.

If you make multi-legged options trades frequently, you should check out the brokerage firm OptionsHouse.com where they charge a low fee of only $0.15 per contract (+$4.95 per trade).

Similar Strategies

The following strategies are similar to the calendar straddle in that they are also low volatility strategies that have limited profit potential and limited risk.

Explaining the “Straddle” (It’s Not As Obscene As It Sounds)

Table Of Contents

You’re enjoying your first time in a real poker room.

You’ve played for several orbits of the button and are feeling like you’re getting the hang of things.

Then, suddenly, when you’re four seats left of the button, expecting to be second to act.

The player to your right puts out some chips even before picking up his cards, the dealer says, “Straddle,” and points to you.

Apparently, everyone expects you to do something.

Your mind reels, wondering if your legs are long enough to straddle whatever it is the dealer expects you to straddle and whether it will look pornographic if you do it.

What the hell is going on here?

What do Players Think about the Straddle Bet?

Players Reaction
Aggressive Players In Favor. You get more action when the straddle bet can lead to an all-in blind bet.
Conservative Players Against. When you don’t set a limit for the straddle bet in no-limit poker games, you risk turning the hands into a luck-based lottery.

What is a Straddle in Poker?

  • The straddle in poker is an extra bet that is placed before the cards are dealt.
  • The straddle bet is usually equal to 2x the big blind (BB).
  • In some particular cases that we explore in this article, the amount of this bet can be unlimited.

The “straddle bet” is one of the most confusing subjects to try to explain to new players.

The essential concept is that the straddle is an optional blind bet (i.e., one made before the cards are dealt).

But the number of variations on that basic idea is dauntingly large and bewildering to every new player.

The straddle is an optional blind bet.

You can hit five Vegas poker rooms in a day, and find that they all have different rules for straddles.

Let’s start by describing the basic elements of what we might call the “classic” straddle in poker:

  • It occurs in “flop” games or the versions of poker in which there are community cards used by all players to make their hands — mainly Texas hold’em and Omaha poker.
  • The option to place a straddle bet belongs to the player who would otherwise be first to act, which is the seat to the immediate left of the big blind.
  • The straddle bet, if it is to be done, must be either put out or verbally announced before the cards are dealt, or at least before the player has looked at his cards. (The former way is easier to enforce, but some casinos allow the latter.)
  • The size of the straddle bet is double the big blind, and effectively acts as a voluntary third blind, by which I mean that it sets a new “limp-in” level. In a $1/$2 no-limit hold’em game, the straddle would be $4. Subsequent players in turn then must either call that $4, raise, or fold. In essence, for one hand the straddle transforms the game from $1/$2 no-limit to $1/$2/$4 no-limit.
  • Because the straddler put his money in without having seen his cards, he is given another chance to act after having looked at them, just as the two players in the blinds get. His options are the same as those that the big blind has when there is no straddle: check, fold, or raise, depending on what action has gone before.
  • After the flop, everything proceeds in the normal fashion; the fact that there was a preflop straddle has no further effect on how the hand is played.

All of that is not too hard to deal with.

You just think of the straddle as an optional third blind, and everything makes perfect sense.

But poker players are never content to just leave well enough alone. They’re always tinkering, coming up with new variations to keep from getting bored and to try to find a new strategic edge.

The most common variant is the “Button Straddle”

So we started seeing mutations of the basic elements listed above. And these can change the very nature of this bet and the poker straddle definition.

The Straddle Bet in No-Limit Games

In no-limit games, some people reasoned that the “no-limit” concept should apply to all bets, including the straddle.

As a result, you now sometimes see house rules that allow the straddle to be any amount, up to and including an all-in blind bet. Action-hungry players love this.

Other more conservative players think it ruins the game, turning a contest of skill into a crapshoot when the game has a few players who take advantage of this leeway.

If you ask me, I’m delighted to have a game in which we have players routinely putting in all their chips in the dark.

  • I am not one of them
  • I get to decide whether to call after looking at my cards.

If you think about it, this way of using the straddle bet in poker is an enormous advantage in my favour — a far larger mathematical edge than I could get in most games.

Besides, action like that doesn’t tend to go on for very long.

The players doing it either burn through all the money in their pocket, or they get lucky, accumulate a huge stack, and decide to either cash-out or start playing more cautiously.

Poker Straddle: Three Scenarios to Know

There are different scenarios where you might be required to know how to deal with straddling and how to size your first bet.

  1. The Under-the-Gun (UTG) Straddle: This is the most common straddle in poker. The UTG player is required to place the straddle bet before the dealer begins to distribute the cards.
  2. The Mississippi Straddle: Any player can straddle — as long as they do it before the cards are dealt. If no one re-straddle (yes, that’s possible), the player who places the straddle bet is the last one to act before the flop.
  3. The Un-Capped Straddle: This is the occasion we have seen above when we spoke about no-limit games. This type removes the 2x BB rule and lets players bet as much as they want / can afford.

The “Button Straddle”

Things got even more confusing when poker rooms started introducing variations on who can straddle.

Very rarely, you’ll find a game in which a straddle is allowed from any position.

Another common variant these days is the “button straddle.”

The game can’t have more than one straddle. The button straddle, if in play, takes precedence over the under-the-gun straddle, and the dealer pushes the latter bet back to the player before passing out the cards.

Unfortunately, giving the straddle option to the player on the button wreaks havoc on the usual order of play, if the straddler is to have the last option to raise, as he does when the straddle is from the first position.

Casinos have devised several ways of handling this anomaly:

In some places, the use of the button straddle option means that action starts with the under-the-gun player, proceeds clockwise as usual, but then skips the button, jumps to the two blinds, then back to the button for his move.

Of course, if the button chooses to raise, then the action goes around the table again.

Finally, you will rarely encounter a game with even more complicated rules, such as having the order of action between the button and the blinds change depending on how many raises have been made in the meantime.

It gets horribly complicated and confusing to everyone.

Don’t worry about these obscure variants. They’re usually found only in high-stakes, action-crazy games.

I’ll save for another day a discussion of whether and when you might want to straddle for tactical advantage.

For now, if you’re aware of the traditional procedure and the most commonly found modern variants on that classic, as explained above, you’ll be in a position to avoid the confusion and frustration that new players otherwise tend to experience when first encountering the poker oddity called the straddle.

888poker Ambassador Vivian Saliba Explains the Pros and Cons of the Straddle Bet

Usually, players will straddle from under the gun or the button, although on rare occasions they can be allowed to straddle from other positions (a.k.a., a “Mississippi straddle”).

The straddle size is commonly twice the big blind — thus, if the game is $5/$10 no-limit hold’em, the straddle bet would be $20.

The straddle bet increases the stakes of the game you are playing.

There are a few things to consider when putting in a straddle bet in poker or when playing a “straddled” hand.

First of all, you must keep in mind that when a straddle or third blind bet is played, that will increase the stakes of the game you are currently playing.

If you are playing a $1/$2 no-limit hold’em game with effective stacks of $200, the Stack-to-Pot ratio (or SPR) before any bets are made is 66.66.

That changes if someone decides to throw the straddle bet into the mix.

If someone puts in a $4 straddle (2x the big blind), suddenly the SPR drops to 28.57. This change means you’ll have to adjust your preflop ranges and strategy.

Two Key Factors to Consider:

If you believe you have an edge against the other players, decreasing the SPR might not be the best thing for you to do.

It might have the effect of limiting the decision-making of short stacks, which in turn gives them fewer opportunities to make mistakes, thereby lessening your edge.

  • If most of those sitting around the table are deep-stacked, playing in a bigger game might be a good thing to do, insofar as it can increase your chances of winning bigger pots.
  • Another argument in favour of straddling is that doing so usually loosens up the game. This creates what could be a better dynamic for you with more action.

    This is especially true if you can influence other players to do the same and straddle as well.

    You shouldn’t feel bad or hesitate at all to refuse to straddle if this is your wish.

    When an entire table is straddling (or even most of the players), some don’t even realize they are actually playing a bigger game than they should be.

    A situation like this one can lead to those players experiencing more pressure and thus play less well.

    The straddle bet can even cause them to tilt and make more mistakes.

    Even if you believe there are good reasons to straddle, keep in mind that straddling from Under the Gun (as opposed to straddling from the button or other positions) can mean putting in more money and potentially playing bigger pots from out of position.

    Most players — even the most profitable ones — lose money when playing from the small and big blinds.

    Voluntarily putting in that third blind from UTG thus increases your risk.

    Not only you’ll be playing a bigger game but very likely be playing from out of position in most post-flop situations.

    The scenario is considerably different when you straddle from the button, which is the most profitable position at the table for most players.

    Making the game play bigger while enjoying position post-flop can be a profitable strategy.

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    Remember that making smart decisions is the key to success in poker.

    Always make it clear to yourself the reasoning behind your decisions with every move you make when playing poker.

    That goes for decisions made in a hand, as well as the decision whether or not to straddle when given the opportunity.

    Even though poker is a social game — and I highly recommend you try your best to enjoy it and also to be sociable while playing — you shouldn’t feel bad or hesitate at all to refuse to straddle if this is your wish, even if everyone else is doing it.

    Stay disciplined, and evaluate every situation in order to make the best choice for you.

    Video: How to Use the Straddle Bet to Win More Hands

    In this conversation part of the PokerSimple series, poker-lifers Tommy Angelo and Lee Jones explain how you can use the straddle bet in poker to your own advantage.

    Poker Straddle F.A.Q.

    Why do you straddle in poker?

    The straddle bet ‘buys’ you the right to be the last one to act. This way, you can act as if you were on the big blind even if you are not.

    Is the straddle considered to be a raise?

    According to Robert’s Rules of Poker by Bob Ciaffone, the straddle is a third blind, not a raise. However much the straddle is, that’s the new big blind.

    How much can you straddle in poker?

    The standard straddle bet is equal to 2x the big blind (BB). In a $1/$2 Hold’em game, the straddle would be $4. Once the straddle bet is on the table, all the other players will need $4 to ‘Call’ and continue playing the hand.

    Is straddling profitable in poker?

    Hardly so. The straddle is a blind bet, and it is never +EV to invest in your hand before you see what cards you hold.

    About the Authors

    Robert Woolley lives in Asheville, NC. He spent several years in Las Vegas and chronicled his life in poker on the “Poker Grump” blog.

    Primarily an online player, 888poker Ambassador Vivian “Vivi” Saliba has recently collected numerous live cashes including making the money in both the 2020 WSOP Main Event and 2020 WSOP Europe Main Event.

    Pot-limit Omaha is her favorite variant, and among her many PLO scores is an 11th place in the $10,000 Pot-Limit Omaha 8-Handed Championship at the 2020 WSOP.

    Get all the latest PokerNews updates on your social media outlets. Follow us on Twitter and find us on Facebook!

    How a Straddle Option Can Make You Money No Matter Which Way the Market Moves

    This options strategy profits from big moves — in either direction.

    Image source: Getty Images.

    Options strategies can seem complicated, but that’s because they offer you a great deal of flexibility in tailoring your potential returns and risks to your specific needs. One interesting strategy known as a straddle option can help you make money whether the market goes up or down, as long as it moves sharply enough in either direction. The straddle option is a neutral strategy in which you simultaneously buy a call option and a put option on the same underlying stock with the same expiration date and strike price. As long as the underlying stock moves sharply enough, then your profit is potentially unlimited.

    What goes into a straddle option?

    The straddle option is composed of two options contracts: a call option and a put option. To use the strategy correctly, the two options have to expire at the same time and have the same strike price — the price at which the option calls for the holder to buy or sell the underlying stock. Specifically, the call option gives you the right to buy the stock at a set strike price at any time before the option’s expiration. The put option gives you the right to sell the same stock at the same set strike price before expiration.

    To buy the two options, you’ll need to pay one premium for the call option and another premium for the put option. As you’ll see below, the total you pay in premiums represents your maximum potential loss on the straddle option position.

    When does a straddle option make you money?

    Straddle option positions thrive in volatile markets because the more the underlying stock moves from the chosen strike price, the greater the total value of the two options. Given the way that the straddle is set up, only one of the options will have intrinsic value when they expire, but the investor hopes that the value of that option will be enough to earn a profit on the entire position.

    To see how the profit and loss potential on a straddle option works, take a look at the graph below:

    Image source: Author.

    Here, this example involves buying straddle options with a strike price of $50 and paying a total of $10 in premium for the two options. In this case, the worst-case scenario is if the stock doesn’t move and remains at $50 at expiration. If that happens, both options expire worthless, and you’ll lose the $10 you paid for the options.

    On the other hand, if the stock moves sharply in one direction or the other, then you’ll profit. For instance, if the stock falls to $20, then the call option expires worthless, but the put option has a value of $30 at expiration. When you net out the $10 you paid in premium, that leaves you with a net profit of $20 on the straddle position.

    Notice that if the stock rises to $80, the end result is the same. Here, it’s the put option that expires worthless and the call option that has a value of $30 at expiration, but the profit of $20 is the same.

    When doing a straddle makes the most sense

    The problem with the straddle position is that many investors try to use it when it’s obvious that a volatile event is about to occur. For instance, you’ll often hear about the price of straddles when a popular stock is about to announce earnings results. Because the stock is almost certain to move in one direction or another, straddles are often at their most expensive preceding known market-moving events.

    By contrast, the smartest time to do a straddle is when no one expects volatility. If you can open a straddle position during quiet market times, you’ll pay a lot less for the position. Then, the stock doesn’t have to move as much in order to generate a profit. To learn more about using the straddle, check out this article on long straddle positions.

    Straddle options let you profit regardless of which direction a stock moves. The enemy of the straddle is a stagnant stock price, but if shares rise or fall sharply, then a straddle can make you money in both bull and bear markets.

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