1. What is straddle?
A straddle is an options trading strategy that involves purchasing both a call option and a put option
with the same strike price and expiration date. The straddle strategy is employed when an investor
expects a significant price movement in the underlying asset but is uncertain about the direction of that
movement.
Here's how a straddle works:
Components of a Straddle:
Call Option: This gives the investor the right (but not the obligation) to buy the underlying asset at a
specified strike price before or at the expiration date.
Put Option: This gives the investor the right (but not the obligation) to sell the underlying asset at a
specified strike price before or at the expiration date.
Same Strike Price and Expiry:
In a straddle, both the call and put options have the same strike price and expiration date. For example,
if an investor believes a stock is going to experience significant volatility but is unsure about the
direction (up or down), they might execute a straddle by buying both a call and a put option for the
same stock with the same strike price and expiration date.
Profit Potential:
The straddle strategy aims to profit from the anticipated volatility. If the price of the underlying asset
moves significantly in either direction (up or down), one of the options (either the call or the put) will
become profitable, offsetting the loss on the other option. The goal is to make more in profits than the
combined cost of purchasing both options.
2. Risk:
The risk in a straddle strategy is primarily the cost of purchasing both the call and put options. If the
price of the underlying asset does not move significantly, and volatility remains low, both options may
expire worthless, leading to a loss.
Breakeven Points:
There are two breakeven points in a straddle:
Upper Breakeven: The stock price at which the profits from the call option offset the total cost of the
straddle.
Lower Breakeven: The stock price at which the profits from the put option offset the total cost of the
straddle.
Volatility Impact:
Straddles benefit from an increase in volatility. The more significant the price movement in the
underlying asset, the higher the potential profits.
Traders often use straddles when they anticipate a major news event, earnings announcement, or other
situations that could lead to significant price movements. However, it's essential to be aware of the
costs involved and the potential risks, as well as the fact that the price movement needs to be
substantial enough to cover those costs and generate a profit.
LTP Calculator
LTP
Supercharge your stock market strategy with the LTP Calculator – your go-to
investment companion! Enjoy real-time insights, fingertip precision, and unrivaled
reliability. Our user-friendly tool makes complex calculations a breeze, providing
crystal-clear Last Traded Price (LTP) values. It's free to access – just enter your
stock symbol and make informed decisions on the spot. Thanks to advanced
3. algorithms, the LTP Calculator ensures you stay ahead of the curve. Don't wait –
click now to revolutionize your stock market approach!
LTP Calculator is available on play store here is link –
https://play.google.com/store/apps/details?id=com.ltpcalculator.android
If you want to learn stock market then you can learn stock market from India's
best stock market trainer Vinay Prakash Tiwari, who is the founder of Investing
Daddy and has provided training to millions of people.
4. Please upvote and follow me if you thought this was useful. I'm really grateful
for your support!