A straddle is an options trading strategy that involves buying or selling both call and put options with the same strike price and expiration date for the same underlying security. This strategy aims for profit from significant price movements in either direction, but can lead to losses if there is no movement. It is best employed when low volatility is expected, allowing investors to benefit from even small price changes.

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Straddle

2. 1. Meaning
2. Key Features
3. Profit Potential
4. Types
5. When to Go for Straddle?
6. Tips for Success
7. Reference
Content

3. The STRADDLE is a trading strategy that involves the use of options. This strategy calls for taking a neutral stand on
the market. And thus, suggests buying or selling, call and put options of the exact same strike price, with the same expiry
date for the same underlying security.
Meaning

4. Key features of Straddle are:
• An investor either buys or sells the two options (call and put).
• The two options should represents same underlying security.
• The strike price for the options as well as the expiry date of the options should be the same.
• Both the options are exact replica of one another except both or on either side of the trade.
Key Features

5. • The trader will make a net profit in straddle if the price movement more than offsets the cost of the buying options.
• If there is No Price Movement, both the call and put options will become zero on the date of expiry.
• If Security Price Moves Up, the call option will become zero, but the put option will give a profit to the investor.
• If Security Price goes Down, the put option will become zero, but the call option will give a profit to the investor.
Profit Potential

6. 1. Long:
Under this straddle, a trader/investor buys both the options-call and put having the same strike price and for the same
expiry date. Such a strategy promises unlimited profit potential.
2. Short:
In this case, an investor will sell both calls and put options for the same strike price and for the same expiry. Such a
strategy is risky for the investors as they could end up losing a big amount.
Types

7. The best time to enter such a strategy is when no one expects volatility. Thus, when you enter a position during such
times, you pay a lot less for these options. In such a scenario, an investor would be able to earn a profit even with a small
movement in the stock price.
When to Go for Straddle?

8. • For maximum profit, an investor must go for such a strategy when there is enough time to expiry.
• It is best for an investor to go for at-the-money options.
Tips for Success

9. Reference
To know more about it, click on the link given below:
https://efinancemanagement.com/derivatives/straddle-2