Bear Straddle

AAA

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.

INVESTOPEDIA EXPLAINS '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. Bear

    An investor who believes that a particular security or market ...
  4. Condor Spread

    Similar to a butterfly spread, a condor is an options strategy ...
  5. Short Straddle

    An options strategy carried out by holding a short position in ...
  6. Straddle

    An options strategy with which the investor holds a position ...
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 options strategies are best suited for investing in the aerospace sector?

    The best options strategies for investing in the aerospace sector exploit the sector's volatility and propensity for big ... Read Full Answer >>
  3. What options strategies are best suited for investing in the Internet sector?

    The long straddle and long strangle options strategies enable investors to capitalize on the Internet sector's volatility. ... Read Full Answer >>
  4. How many attempts at the Series 7 exam are permitted?

    The National Association of Securities Dealers (NASD) has not placed any limits on the number of times you can attempt to ... Read Full Answer >>
  5. Where can I buy covered call ETFs (exchange-traded funds)?

    Covered calls can be traded through any major retail broker. Investors need to have their brokerage accounts approved for ... Read Full Answer >>
  6. What options strategies are best suited for investing in the automotive sector?

    The automotive sector is more volatile than the broader market. The sector is prone to big movements in both directions. ... Read Full Answer >>
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

    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.
  6. Options & Futures

    Get A Strong Hold On Profit With Strangles

    Forget straddles. These strangles are both liberating and legal in the investing world.
  7. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  8. Options & Futures

    Why Is Best Buy Stock So Volatile?

    We look at why BBY has been so volatile in the past and whether this trend is likely to continue or abate in the future.
  9. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  10. Options & Futures

    Circumvent Limitations of Black-Scholes Model

    Mathematical or quantitative model-based trading continues to gain momentum, despite major failures like the financial crisis of 2008-09, which was attributed to the flawed use of trading models. ...

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center