Bear Straddle

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.

RELATED TERMS
  1. Covered Bear

    A trading strategy in which a short sale is made on a long position. ...
  2. Covered Straddle

    An option strategy that involves writing the same number of puts ...
  3. Condor Spread

    Similar to a butterfly spread, a condor is an options strategy ...
  4. Bear

    An investor who believes that a particular security or market ...
  5. Straddle

    An options strategy with which the investor holds a position ...
  6. Short Straddle

    An options strategy carried out by holding a short position in ...
Related Articles
  1. Options & Futures

    Profit On Any Price Change With Long Straddles

    In this strategy, traders cash in when the underlying security rises - and when it falls.
  2. Options & Futures

    How The Straddle Rule Creates Tax Opportunities For Options Traders

    This rule allows traders to substantially reduce their risk, and possibly benefit on their tax returns as well.
  3. Options & Futures

    The Long Straddle And Price Consolidation

    With options, the direction of a stock's next major move becomes less important than its magnitude.
  4. Options & Futures

    Profit From Earnings Surprises With Straddles And Strangles

    These option strategies allow traders to play on earnings announcements without taking a side.
  5. Options & Futures

    Get A Strong Hold On Profit With Strangles

    Forget straddles. These strangles are both liberating and legal in the investing world.
  6. Options & Futures

    Straddle Strategy A Simple Approach To Market Neutral

    Being both short and long has advantages. Find out how to straddle a position to your advantage.
  7. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  8. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  9. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  10. Term

    What is Pegging?

    Pegging refers to the practice of fixing one country's currency to that of another country. It also describes a practice in which investors avoid purchasing security shares underlying a put option.
RELATED FAQS
  1. What's the difference between a straddle and a strangle?

    Straddles and strangles are both options strategies that allow the investor to gain on significant moves either up or down ... Read Full Answer >>
  2. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  3. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  4. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  5. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. How does a forward contract differ from a call option? (AAPL)

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center