06 Sep Straddle Option Is A Long Time Strategy
If you plan to go for a non-directional strategy in trading, then going for Straddle Option would be the best move for you. By choosing this strategy, you get the benefit of making money even with no knowledge of where the market is going to move. Even if the market moves down, you will still end up making money, and when the market moves up, you are going to benefit anyway. Now the catch lies in understanding the logic that can help you put a Straddle option in place.
Creating a Straddle Option…
In order to get this non-directional strategy in place, you will need to follow the given steps carefully. In the first step, you have to buy equal number of ‘Call’ and ‘Put’ options the same ‘Strike price’ and ‘Expires’ at the same time. Having done this, you can now create 2 types of Straddle; the ‘Long Straddle’ and the ‘Short Straddle’. To create the Long Straddle option, you will have to buy ‘At the money call option’ and a ‘Put option’. Both these options are to be bought at the same ‘Strike price’ and ‘Expires’ at the same instant. This is how you will put a Long Straddle option in place.
A short Straddle option on the other had will be created by selling a ‘Put’ and ‘A call’ of the same stock, having same strike price and same expiry date. The only problem with Short Straddle though is that the profit from this option is limited to the premiums of the option. When it comes to Short Straddle loss, it can be unlimited if the stock price goes up very high or goes down very low (to zero).
Long Straddle Offers Unlimited Profits and Limited Losses…
A key thing about using a Straddle option is that it is more advisable to use during times of economic uncertainty, or before the announcement of a major policy shift by the government, which is going to have a radical impact on the prices after the announcement is made and the news hits the market. Another key aspect of going for a long Straddle option is to purchase when the stock is in less volatile state. When the price is cheaper, the stock is in a state of high volatility, but when the price starts consolidating with the anticipation of breaking out, that indeed the ideal time to go for the Long Straddle option.
Anyhow, straddle option is actually a long time strategy, so you won’t be required to watch it every hour.