Options trading strategies – Straddle techniques

Options trading strategies – Straddle techniques

Options Trading Strategies – Straddle Technique

A Straddle is an options trading strategy used to profit from large price movements in either direction. It involves buying or selling both a call and a put option with the same strike price and expiration date.

1. Long Straddle (Buying Strategy)

Best for: High volatility expectations (before earnings, major news events, etc.)
How it works:

• Buy At-the-Money (ATM) Call

• Buy At-the-Money (ATM) Put

Profit: If the stock moves significantly in either direction.
Loss: If the stock remains near the strike price (loss limited to premium paid).

Example:

• Stock Price: $100

• Buy Call (Strike: $100, Premium: $5)

• Buy Put (Strike: $100, Premium: $5)

• Total Cost (Premium Paid): $10

• Profit if the stock moves above $110 or below $90 before expiry.

Unlimited Profit Potential (if price moves up or down significantly).
Maximum Loss = Total premium paid ($10).

2. Short Straddle (Selling Strategy)

Best for: Low volatility expectations (range-bound markets).
How it works:

• Sell At-the-Money (ATM) Call

• Sell At-the-Money (ATM) Put

Profit: If the stock stays close to the strike price (you keep the premium).
Loss: If the stock moves significantly in either direction (unlimited risk).

Example:

• Stock Price: $100

• Sell Call (Strike: $100, Premium: $6)

• Sell Put (Strike: $100, Premium: $6)

• Total Credit (Premium Collected): $12

• Max Profit: $12 if the stock remains at $100.

• Unlimited loss if the stock moves far above or below $100.

Best in low volatility markets
High-risk strategy due to unlimited loss potential

 When to Use a Straddle?

• Long Straddle → Expecting a big price move (earnings, major events, etc.).

• Short Straddle → Expecting little price movement (sideways market).

Would you like a live example or a variation like the Strangle strategy?

Options trading strategies – Straddle techniques

Straddle Opportunities for Earnings

Module 6_Option Strategies.pdf

Here’s a clear and practical explanation of the Straddle Strategy in Options Trading, designed for beginners and intermediate traders. This covers how it works, when to use it, and the risks/rewards.

---

What is a Straddle in Options Trading?

A straddle is an options strategy where a trader buys both a Call and a Put option on the same underlying asset, with:

• the same strike price

• the same expiration date

---

Objective of a Straddle:

To profit from big price movements, regardless of the direction (up or down).
You’re betting that the stock will move a lot, not just up or down.

---

Types of Straddle Strategies

1. Long Straddle (Bullish on Volatility)

How It Works:

• Buy 1 Call option (ATM)

• Buy 1 Put option (ATM)

• Both have same strike price and expiry

You Profit When:

• The stock moves significantly in either direction (up or down)

You Lose When:

• The stock stays near the strike price (low volatility)

Example:

• Stock: ₹100

• Buy Call at ₹100 (Premium ₹5)

• Buy Put at ₹100 (Premium ₹5)

• Total cost: ₹10

If stock moves to ₹120 → Profit on Call
If stock drops to ₹80 → Profit on Put
If it stays near ₹100 → You lose premiums

---

2. Short Straddle (Bearish on Volatility – High Risk)

How It Works:

• Sell 1 Call option (ATM)

• Sell 1 Put option (ATM)

You Profit When:

• The stock price stays very close to the strike price (low volatility)

You Lose When:

• The stock moves sharply up or down

Very risky because potential loss is unlimited.

---

Profit-Loss Summary:

---

When to Use a Long Straddle:

Before news announcements, earnings reports, court rulings, central bank meetings, or election results
When you expect high volatility, but don’t know the direction

---

Break-Even Points (For Long Straddle)

Let’s say:

• Strike Price: ₹100

• Premium (Call) = ₹5

• Premium (Put) = ₹5

• Total Premium = ₹10

Break-even on Upside = ₹100 + ₹10 = ₹110
Break-even on Downside = ₹100 − ₹10 = ₹90

Only if price moves beyond ₹110 or below ₹90, you profit.

---

Tools You Can Use:

• Options Calculator (to simulate payoffs)

• Volatility Charts

• Option Chain Analysis (from NSE/BSE or platforms like Zerodha/Upstox)

---

Summary:

---

Want More?

Would you like:

• A YouTube script for Straddle explained in Hindi/English?

• A PowerPoint or infographic with examples and visuals?

• A comparison of Straddle vs Strangle vs Spread strategies?

Let me know — I’ll prepare it for you!

Options trading strategies – Straddle techniques

Analytical Study of Short Straddle and Short Strangle – ijrpr