Options trading strategies – Straddle techniques
Options trading strategies – Straddle techniques
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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:
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Buy At-the-Money (ATM) Call
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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:
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Stock Price: $100
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Buy Call (Strike: $100, Premium: $5)
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Buy Put (Strike: $100, Premium: $5)
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Total Cost (Premium Paid): $10
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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:
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Sell At-the-Money (ATM) Call
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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:
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Stock Price: $100
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Sell Call (Strike: $100, Premium: $6)
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Sell Put (Strike: $100, Premium: $6)
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Total Credit (Premium Collected): $12
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Max Profit: $12 if the stock remains at $100.
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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?
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Long Straddle → Expecting a big price move (earnings, major events, etc.).
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Short Straddle → Expecting little price movement (sideways market).
Would you like a live example or a variation like the Strangle strategy?
