Technical 101: Straddle strategy : a formula and template

This is a extension of @Tiger_comments piece on this where this strategy can be used for highly volatile assets. 

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Step by step 

Identify a growth stock: Find a growth stock that you believe will experience significant price movement in the near future, either up or down. Growth stocks are typically characterized by rapidly increasing revenues, earnings, and market share.

Choose the strike price: Select a strike price that is close to the current trading price of the stock. This is the price at which you will buy the call option and the put option.

Buy call and put options: Purchase a call option (the right to buy the stock at the strike price) and a put option (the right to sell the stock at the strike price) with the same expiration date. This will create a straddle position.

Monitor the stock: Keep an eye on the stock's price movement. The straddle strategy is profitable when the stock price moves significantly in either direction (up or down). The more the stock moves, the more profitable the strategy becomes.

Exit strategy: Close the position when you reach your profit target or when the options are nearing expiration. You can sell the options back to the market, exercise them, or let them expire worthless.

A 🌰 Case （transaction costs not inside)

Choose the strike price: You select a strike price close to the current trading price, say $100.

Buy call and put options: You buy one call option contract (representing 100 shares) with a premium of $5 per share and one put option contract with a premium of $5 per share. The total cost of the straddle is $1,000 (the sum of the premiums: ($5 + $5) x 100 shares).

Monitor the stock: The FDA announcement is made, and it turns out to be positive. The market reacts, and BTI's share price surges to $120. The call option is now in-the-money and has increased in value to $25 per share, while the put option is out-of-the-money and now worth almost nothing.

Exit strategy: You decide to sell the call option back to the market, realizing a profit of $20 per share ($25 sale price - $5 initial premium) for a total profit of $2,000 (100 shares x $20). The put option expires worthless. After accounting for the initial investment of $1,000, your net profit is $1,000 ($2,000 - $1,000).

No fluff formula for calculation [What] 

Identify the stock's current price (S), the call option premium (C), the put option premium (P), and the total transaction fees (F).

Calculate the total premium cost (TP) as the sum of the call and put option premiums: TP = C + P

Add the total transaction fees to the total premium cost: TP_adjusted = TP + F

Calculate the upper breakeven point (UBP) as the sum of the stock's current price and the adjusted total premium cost: UBP = S + TP_adjusted

Calculate the lower breakeven point (LBP) as the difference between the stock's current price and the adjusted total premium cost: LBP = S - TP_adjusted

Now, you can evaluate the potential profitability of the straddle strategy, taking into account transaction fees. The strategy will be profitable if the stock price moves above the upper breakeven point or below the lower breakeven point by the options' expiration date.

What has your experience of using this strategy, like @Alice Arnault