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Options trading strategies – Straddle techniques

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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:

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

Example:

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:

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:

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

 When to Use a Straddle?

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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:

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:

You Profit When:

You Lose When:

Example:

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:

You Profit When:

You Lose When:

Very risky because potential loss is unlimited.

Profit-Loss Summary:

Strategy Max Profit Max Loss Best Scenario
Long Straddle Unlimited Total premium paid Big move in either direction
Short Straddle Total premium received Unlimited Price stays at strike

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:

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:

Summary:

Strategy Use When Risk Reward
Long Straddle Big move expected (direction unknown) Limited (premium paid) Unlimited
Short Straddle Expect price to stay stable Unlimited Limited (premium received)

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Options trading strategies – Straddle techniques

Analytical Study of Short Straddle and Short Strangle – ijrpr