Bear Straddle

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DEFINITION of 'Bear Straddle'

A speculative options trading strategy that consists of purchasing a short position in both a call and a put that have the same strike price and expiration date. A bear straddle's profit potential is limited to the premiums the investor collects from the trade. This type of straddle is based on the slang term "bear," which is used to describe a pessimistic investor who attempts to profit from a price decline.

BREAKING DOWN 'Bear Straddle'

Also called a "short straddle," the bear straddle is a risky position based on the premise that prices will not see a significant change. If this premise is wrong, the investor can experience sizable losses, like when derivatives trader Nick Leeson contributed to the bankruptcy of Barings Bank in 1995 with an ill-fated short straddle.

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RELATED FAQS
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    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
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