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
  1. How risky is a straddle?

    Learn how options traders use long and short straddles to potentially profit from a market regardless of the direction of ... Read Answer >>
  2. When is an options straddle deep in the money?

    Learn about options straddle positions, the moneyness of straddles and when a straddle position is considered to be deep ... Read Answer >>
  3. Under what circumstances should I pursue a straddle?

    Learn what a straddle is, how a straddle position is created, when you should pursue a long straddle strategy and when to ... Read Answer >>
  4. What kinds of financial instruments can I use a straddle for?

    Learn about options and straddles; discover some examples of optionable assets and how a straddle is used for financial instruments. Read Answer >>
  5. What options strategies are best suited for investing in the telecommunications sector?

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