A straddle is an options strategy in which the trader holds a position in both a call and put with the same strike price and expiration date, paying both premiums.
This strategy allows the trader to make a profit regardless of whether the price of the security goes up or down, assuming the change in the underlying stock price is significant enough to move past either of the strike prices and offset the cost of the premiums.
As the stock price falls or rises the strategy makes money. If the stock price doesn't move much, the strategy loses money
Breaking Down the 'Straddle'
Straddles are a good strategy to pursue if an investor believes that a stock's price will move significantly but is unsure as to which direction. This is a neutral strategy. The investor is indifferent whether the stock goes up or down, as long as the price moves enough for the strategy to earn a profit
‘Straddle’ Mechanics & Characteristics
Creating a long straddle position-
Step 1- Purchase one call option and one put option.
Note: Both options must have the same strike price and expiration date.
If non-matching strike prices are purchased, the position is then considered to be a strangle, not a straddle.
Long straddle positions have unlimited profit and limited risk. If the price of the underlying asset continues to increase, the potential profit is unlimited.
If the price of the underlying asset goes to zero, the profit would be the put's strike price less the premiums paid for the options. In either case, the maximum risk is the total cost to enter the position, which is the combined cost of the call and put option.
The profit when the price of the underlying asset is increasing is:
Profit (down) = Strike price of put option - price of the underlying asset - net premium paid. As with the scenario above, multiply by 100 (one contract) to get the total profit on the trade.
The maximum loss is the total net premium paid plus any trade commissions.
There are two breakeven points in a straddle position.
Upper breakeven point- is equal to strike price of the call option plus the total premium cost.
Lower breakeven point- is equal to the strike price of the put option less the total premium paid.
When To initiate a straddle position
Step no 1:
Plot a bollinger band on 60 min chart
Step No 2:
Calculate the width of Bollinger band
Step No 3 :
This statregy has a potential to give 35 %pa + return
The Light Blue Candles are area to initiate a straddle position.The number of trade initiated in 3 months time are 110-12.
With advance straddle short strategy we get consistent return on investment..
53 views0 comments