What is the max risk on a straddle???

I have a very accurate trading method that I have confidence in. I currently have an 83% win rate on bear and bull spreads. i want to shorten the timeframe and make more precise trades. I am having a hard time getting my head around this as options are not really my thing.

Sooooo. Suppose I want to take a straddle trade on SPY with an option expiring the next day. So if I buy a call at $514 the current price is $1.16. Then I want to sell a $514 put and the price on that is $2.02. So if SPY flies in either direction I will be flat when the options expire Executing both a buy and a sell at $514. But how much am I risking? I realize my max profit is the net credit/debit of $0.86 but how much would I lose if the stock goes down?

 

It that a typo? You want to buy the 514 calls and sell the 514 put? That is a synthetic long stock position not a straddle. Did you mean buy both for a debit of (1.16 + 2.02) $3.18?

 

No, not a typo. I am really new at this and picked the wrong name. In this case, I would want to buy the call and sell the put because (hypothetically) I think the stock is going up. Better stated is what is the max risk on a synthetic long? So my net credit is $0.86.

 

Max risk is how far the SPY can drop. This is not a "hedged" position with limited risk.

 

that is where I am confused. Wouldn't I buy and sell at $514 at execution?

 

(514-0.86)*100 = 51,314 ...
You are long 100 shares Spy from 513.14

 

Thanks.

 

I'm sorry, I do not understand your question or what you are trying to accomplish.

 

If I think it is going up a couple $ in this instance, I want to be long....and make the net credit. But I cannot figure out what happens if it goes down.

 

Ok, maybe I would need to sell both but the margin would be huge...starting to get it.