Long straddle for UK investors: buying a move, priced in pounds

A long straddle buys a call and a put on the same share, at the same strike and expiry, usually at the money. The most it can lose is the two premiums plus costs, and the whole of that is lost only if the share finishes exactly on the strike. What the buyer gives up is time value: both options lose value on every day the share stands still, and both lose value when implied volatility falls. It is built for a move larger than the option prices already assume, in either direction, often around a dated event. On this page's BP November 530 straddle that is £625.30 at risk, with breakevens of 467.75p and 592.25p at expiry.

BP is used as a model underlying; this is not a view on BP. The straddle is bought on a fixed date in the past, Monday 17 August 2026. It is a long call and a long put held as one position, and the implied-volatility page sets out what an implied move is. The figures are model output rather than market quotes (modelled example: inputs and method).

What BP's November options already price in

The straddle costs 62.25p a share, 11.75% of BP's 530p. That is the market's price for 95 days of movement, set before anything has happened. The model's one-standard-deviation range for 20 November runs from 459.45p to 611.38p (13.3% down, 15.4% up), and the straddle is worth 0.82 of a one-standard-deviation move of 75.71p: the rule of thumb that reads the expected move off the straddle works here too.

The price has two parts. Ordinary movement for 95 days at the model sheet's 26% would cost 57.82p. The November series is priced at 28% instead because it spans BP's third-quarter results on Friday 30 October, while the October series, which expires first, stays at 26%. The difference, £42.19 a contract or 6.8% of the model price, is what the results add. The two volatilities imply a one-day results move of 5.55%, about 29.41p on 530p; the arithmetic is on the implied-volatility page and the earnings page reads the same premium from both sides.

On the library's assumed 12-month BP range of 20% to 44%, 28% is an IV rank of 33, the middle band (IV rank; what the bands mean). At 24% (rank 17) the same straddle would have cost £536.01; at 34% (rank 58), £746.87. So the question the position asks is not whether BP moves, but whether it moves more than 11.75% by 20 November, or more than 5.55% on results day, after paying for the time spent waiting.

One November 530 call and one November 530 put

Model inputs: BP 530p (a model level: BP closed at 519.6p on Monday 17 August 2026, price data Yahoo Finance); IV 28% on both legs, the model sheet's 26% plus the results premium (event model below); Bank Rate 3.75%; a 6.39p dividend with a Thursday 12 November 2026 ex-date (8.66 US cents, BP's Q2 rate, taken as unchanged and converted at $1.356 per £1; the Q3 amount is set with BP's results); 95 days to Friday 20 November 2026; ICE standard contract, 1,000 shares; American exercise priced on a binomial tree (200 and 201 steps, averaged); commission £1.40 a contract a leg (IBKR UK tiered, checked 26 September 2026; the fixed rate is £1.70); purchases filled on the tick above the model value and sales on the tick below, a stricter rule than the library's nearest-tick default (costs), so each fill here can sit a tick away from the nearest-tick figure other pages would use; bid-ask half the quoted spread per leg, each way (costs section).

The two deltas nearly cancel, leaving +73 share-equivalents: the position gains about £0.73 for each 1p rise in BP on the first day, so on day one it is almost indifferent to direction. It is not indifferent to movement or to volatility, which the Greeks below put in pounds.

The contract. Both legs are standard ICE contracts on 1,000 BP shares; there is no 100-share BP option, since BP is not among the 22 UK names with a mini (contract sizes). Each penny of premium on either leg is worth £10, and prices move in 0.25p steps (£2.50). ICE decides which strikes to list, so a live November chain may lack the 530 strike used here; the first check is whether a broker carries the series and shows a two-way price on both legs (broker map).

£625.30 at risk, and the one price where all of it is lost

Commissions follow the library's cost rule: £2.80 to open, and £1.40 for the one leg that still has value to sell; nothing is charged on a leg that lapses. The breakevens after commissions are 467.33p and 592.67p. The model probability (risk-neutral, lognormal, IV 28%) of BP finishing beyond a breakeven is 40.9%: 21.6% below 467.75p and 19.4% above 592.25p.

How these numbers are calculated

Debit = call fill + put fill = 31.50p + 30.75p = 62.25p, or £622.50 on 1,000 shares; maximum loss = debit + two opening commissions = £625.30. Breakevens at expiry = 530p ± debit. The call and the put are each valued on the binomial tree, with the 6.39p paid out of the share price at the 12 November ex-date, and the straddle's value is their sum. The event model gives the November options a variance of 26%² a year on every trading day except the results day, which carries a 5.55% move in place of one ordinary day (1/252 of a year at 26%); the IV on any day before the results is the square root of that total variance divided by the time left (31.13% on 16 October, 33.80% on 29 October), and it returns to 26% once the results are out. Model probabilities use N(d₂) at IV 28%, on a share price reduced by the present value of the dividend. The one-standard-deviation range is 530p × e^{±0.28√(95/365)}. Units: delta in shares of BP, gamma as the change in delta for a 10p move, theta in pounds a calendar day, vega in pounds a point of IV; Greeks on tree-priced values come from small bumps repriced on the tree.

Three expiries around one results date

A straddle's strike is set by the share price; the decision that changes the trade is the expiry. The three BP 530 straddles below were priced on the same day with the same event model, each carrying the results day for as long as it has left.

The October straddle, at £447.39, is the cheapest and decays fastest (−£3.75 a day), but it expires two weeks before the results and never sees them. November, the worked example, pays £42.19 for the results. December spreads the same one-day move over 123 days, so its IV is lower (27.56%) and its results premium £37.35; it costs more in total, £679.97, and less for each day of life, £5.53 against £6.53. A later expiry buys time to be right after the results at a lower daily cost; a nearer one concentrates the money on the event. None of the three is cheap or dear on the model's own terms: each is priced at the volatility the model assumes will follow.

The night of 30 October: how big a move beats the fall in IV

Whoever holds the straddle at the close on Thursday 29 October, whether bought in August or that afternoon, owns something the event model values at 36.31p a share (£363.12) at an IV of 33.80%: the November IV climbs as the results approach, because the one day of extra movement is spread over fewer days (the calendar spread page charts that climb for the November call). Overnight, two numbers decide the result: how far BP moves, and where IV settles once the uncertainty is gone.

With no move and IV back at 26%, the night costs £84.67: £76.31 is the fall in IV and £8.36 is one day of time. With IV back at 26% the holder is level after a rise of about 5.3% (to 558.16p) or a fall of about 4.6% (to 505.49p), close to the 5.55% the options implied; a move of exactly that size gains +£7.69 upwards and +£32.21 downwards. That is what an implied move is: on the model's own prices, the night is close to a fair bet. A fall pays more than a rise of the same size because the put is American and the dividend is still to come. Where IV settles matters as much as the move: a fall only to 30% cuts the loss for no move to £45.57. The implied move is the options' price, not BP's record; comparing it with past results days needs a labelled price history, which this page does not publish.

The worked plan: bought in August, closed on results day

This worked plan closes both legs at the close on Friday 30 October, the results day, which is also 21 days before expiry: the library's 21-day convention and the event fall on the same date. Debit examples in the library state their own targets, and this one sets none: the exit is the event. Sales are filled on the tick below the model value, each leg sold pays £1.40 (a leg worth less than one tick is left to lapse), and each ending then shows what holding to 20 November would have given.

Before the results the straddle pays for time. With BP unchanged and IV held at 28%, it would lose £315.50 between 17 August and 29 October; the rise in the November IV to 33.80% gives back £58.22 of that. The climb into the results is real, and small against 73 days of time value.

Two of the five endings make money, and what separates them is the size of the move by 30 October, not its direction. After the results the August buyer is level only beyond about 473.93p or 590.54p, 10.6% down or 11.4% up, close to the edges of the model's one-standard-deviation range to that date at 28% (467.2p to 601.2p). Priced at the model's own volatility, each ending is part of a fair bet before costs (the methods page explains why); whether the straddle earns anything depends on BP's actual volatility over the 74 days against the 28% paid.

What the straddle is worth on the way to 20 November

Read along the 530p row: −£199.57 by 16 October, −£259.38 on the eve of the results, −£344.05 the day after, and −£470.05 once the dividend has gone on 13 November. The steepest single step is the results night, when IV falls; the steepest stretch is the last three weeks, when there is little time value left to lose and all of it goes. At 470p and 590p the straddle is worth more than it cost on the eve of the results; the results night takes part of that gain away at 470p and all of it at 590p.

Greeks from August to results day

Vega is the number that makes this a volatility position. At entry each point of IV is worth £21.09 to the contract and on the eve of the results £10.05, so the fall from 33.80% to 26% that night costs about £76.31, more than three weeks of the entry theta. Theta starts at −£3.38 a day, reaches −£8.36 on the eve of the results, when the rising IV has to be paid for, and settles at −£6.72 once the results are out and vega has fallen to £9.76. Gamma, +107.5 share-equivalents per 10p at entry, is what makes the position turn directional after a move: after an instant fall to 459.45p it behaves like −648 shares, after a rise to 611.38p like +734 (position Greeks and units; theta as the rent for gamma).

Trading the moves: delta-hedging with 1,000 shares

A straddle holder does not have to wait for the expiry to be paid for movement. Holding the delta near zero with shares turns each swing into cash, and the time decay is the running cost of the right to do it. Two days in August, with IV held at 28%, show the arithmetic:

It worked because a 15p swing each way is 2.83% a day, about 44.9% a year, well above the 28% the options were bought at; on quiet days the hedging earns less than the −£3.38 a day the straddle costs (the gap in pounds per day). Three UK frictions bite. Selling shares short needs a margin account and a borrow. Every purchase of UK shares pays 0.5% SDRT, sales do not, so each round trip of hedging carries it once. And a holder who hedges by selling BP shares already owned and buys them back within 30 days has the purchase matched with the sale for CGT (the 30-day rule); a spread bet used as the hedge is outside CGT altogether (spread bets and CFDs).

BP's 12 November ex-date: the put's extra value and the call holder's choice

Without the dividend the November call would be worth 32.68p and the put 27.93p. The share is expected to drop by 6.39p on Thursday 12 November and the call holder does not receive the dividend, so it takes £12.46 off the call and adds £26.75 to the put, +£14.29 to the straddle as a whole. American exercise adds £21.67 to the call, which could be exercised the evening before the ex-date to collect the dividend, and £1.63 to the put (American against European value).

A long straddle cannot be assigned: both legs are bought, so the ex-date question belongs to the holder. On Wednesday 11 November, nine days before expiry and after the results (IV 26%), the call either stays open through the ex-date or is exercised that evening:

Exercise pays an options intermediary with SDRT relief from between 540p and 545p, and a private holder paying 0.5% on the strike from between 550p and 555p. Exercise also takes delivery of 1,000 BP for £5,300, a share position with its own risk, where selling the call before the ex-date passes its value on without the shares (early exercise before an ex-date). On the put side the question comes after the ex-date, deep in the money, and exercising it delivers 1,000 shares the holder may not own (early exercise of puts).

Adjusting the straddle, and what each choice costs

Roll mechanics, and how the two trades in a roll are taxed, are on the rolling page.

UK tax: two options, or one share computation

Buying the straddle is not a disposal. Each leg is its own asset: sold, it is a disposal with its premium and commissions as the cost; left to lapse, it is a disposal for nothing on the expiry date, giving an allowable loss (TCGA 1992 s144(4); CG55415). Exercised, the call is not disposed of at all: its premium joins the cost of the 1,000 shares (s144(3)(a); CG12314), which become a listed-share disposal when sold (bought options). Figures assume the £3,000 annual exempt amount is used by other gains; all dates fall in 2026/27. The trap on this page is the last row: a call 1p in the money on the last day, exercised unless abandoned, turns an options loss into a share computation with £26.50 of SDRT in its cost.

None of this can be held in an ISA (wrappers); the boxes are on the SA108 page.

Costs, and the account it needs

• Commission: £2.80 to open both legs and £5.60 for a round trip (IBKR UK tiered, £1.40 a contract; the fixed rate is £1.70), also charged on exercise.
• Crossing the spread: on illustrative quotes 1p wide on each leg, half of each quoted spread is 0.50p, £10.00 each way for the pair; a round trip at an unchanged mid costs £20.00, 3.2% of the debit, on top of the tick rounding already in the fills.
• Stamp duty: none in normal ICE dealing. Exercising the call makes the holder the buyer of 1,000 shares and brings 0.5% SDRT on the strike, £26.50; exercising the put makes the holder the seller, and the buyer pays (who pays SDRT).
• Account: nothing is borrowed, so the requirement is the debit, £622.50. At Interactive Brokers a long straddle sits in Options Level 2, with long calls and puts and debit spreads. Its cash accounts require full payment for option purchases; we could not confirm on its pages whether a two-leg combination order is accepted in a cash account (checked 27 September 2026), while two single-leg purchases are ordinary purchases (accounts and permissions).

The same structure on the FTSE 100 or a US share

FTSE 100. The 60-day at-the-money FTSE 100 straddle on 17 August (ICE ESX, £10 a point, IV 14%) is a call of 248.24 points and a put of 235.94, 484.18 points or £4,841.83 a contract, 7.8 times this page's BP straddle. It is European and cash-settled on the Exchange Delivery Settlement Price, so there is no exercise decision, no delivery and no SDRT (FTSE contracts). The Mini FTSE 100 daily options at £1 a point are a tenth of the size but list only the nearest daily expiries and one third-Friday expiry; the long strangle page prices a position on them.

A US share. A US contract is 100 shares, with no UK SDRT on delivery. When a US company reports outside the 14:30 to 21:00 UK session, a straddle held into the report is next marked at the following session's 14:30 UK open (US options in UK time). Each leg is converted to pounds at the rate on its own date, so a straddle bought at one rate and sold at another carries a currency gain or loss inside the sterling figures (two dates, two rates; W-8BEN).

Straddle or strangle for the same money, and other neighbours

Two November 490/570 strangles cost about what one straddle does. Priced on the same day and IV:

For about the same money, the two strangles carry more vega and more theta. They pay more for a very large move (+£405.00 against +£277.50 at 440p or 620p on 20 November) and lose more to a quiet results day (−£520.87 against −£344.05), while the straddle does better after a moderate move (+£37.65 against −£19.72 at 470p). The long strangle page works the structure on the FTSE 100.

Open this example in the strategy builder: the two November legs at their 31.50p and 30.75p fills, with the 12 November dividend. The builder counts opening costs only and, before expiry, draws European curves with each leg's volatility solved from its fill, so its curves differ slightly from this page's tree values.