Long & Short Straddle Options Trading Strategy
Straddle trading strategy is one of the multi-legged options trading strategies in which an option trader buys both call and put options of same expiry date for options of same underlying product. Options straddle trading can provide unlimited profits, but is also riskier. Straddle trading includes mainly two strategies as long straddle and short straddle trading.
Long straddle strategy is suitable for options, in which the underlying product is expected to show great movements and the trader is unable to predict the direction of market. If the stock goes upward the trader can profit from exercising call options, if in the opposite way then from exercising put options. The deviation from the strike price is directly proportional to the profit. Short straddle strategy is suitable for writing put and call options in which the underlying product is expected to show minimal movement. The trader can profit premium amount by expiration of the options.
Both type of options straddle trading include substantial risk. Long straddle practice can result in loss of premium if the stock remains close to the strike price resulting expiration of options without exercise. Short straddles can cause loss if the underlying stock price moves away from strike price. In fact, short straddles are riskier than long straddle and are recommended only to practice by sophisticated and experienced traders.
Long straddle strategy is suitable for options, in which the underlying product is expected to show great movements and the trader is unable to predict the direction of market. If the stock goes upward the trader can profit from exercising call options, if in the opposite way then from exercising put options. The deviation from the strike price is directly proportional to the profit. Short straddle strategy is suitable for writing put and call options in which the underlying product is expected to show minimal movement. The trader can profit premium amount by expiration of the options.
Both type of options straddle trading include substantial risk. Long straddle practice can result in loss of premium if the stock remains close to the strike price resulting expiration of options without exercise. Short straddles can cause loss if the underlying stock price moves away from strike price. In fact, short straddles are riskier than long straddle and are recommended only to practice by sophisticated and experienced traders.
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