{"id":2480,"date":"2010-02-21T21:57:58","date_gmt":"2010-02-21T16:27:58","guid":{"rendered":"http:\/\/www.niftylivecharts.com\/blog\/?p=2480"},"modified":"2010-02-21T21:57:58","modified_gmt":"2010-02-21T16:27:58","slug":"long-straddle-option-trading-strategy","status":"publish","type":"post","link":"https:\/\/www.niftylivecharts.com\/blog\/long-straddle-option-trading-strategy\/","title":{"rendered":"Long Straddle Option Trading Strategy"},"content":{"rendered":"

A long straddle involves going long, i.e., purchasing, both a call option and a put option on some stock, interest rate, index or other underlying. The two options are bought at the same strike price and expire at the same time. The owner of a long straddle makes a profit if the underlying price moves a long way from the strike price, either above or below. Thus, an investor may take a long straddle position if he thinks the market is highly volatile, but does not know in which direction it is going to move. This position is a limited risk, since the most a purchaser may lose is the cost of both options. At the same time, there is unlimited profit potential.<\/p>\n

Risk: <\/strong> Limited, but this is not a low-risk strategy because a Straddle is normally expensive to buy and both options are wasting assets.<\/p>\n

Reward: <\/strong> Unlimited<\/p>\n

When to use:<\/strong> You believe that a stock is about to make a large move in either direction. A good time to utilise straddles is where there has been a prolonged period of extreme quietness (in prices) and implied volatility is around multiyear lows.<\/p>\n

If this is the case look to do longer dated months rather than the shorter ones.<\/p>\n

Volatility expectation: <\/strong> Very bullish. Volatility increases improve the position substantially. However if a straddle is bought when volatilty is high it’s tough to make a profit.<\/p>\n

Profit: <\/strong> Unlimited if stock prices rise but semi-unlimited if stock prices decline as a stock cannot trade less than zero.<\/p>\n

Loss: <\/strong> Limited to the premium paid in establishing the position. Loss will be greatest if the underlying is at the initiated strike at expiry.<\/p>\n

Breakeven: <\/strong> Reached if the underlying rises or falls from option strikes by the same amount as the premium cost of establishing the position.<\/p>\n

Time decay: <\/strong> Hurts a lot, remember you have double time erosion because of the two options bought. Decay depends a lot on volatility if volatility increases time decay will decrease.
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A long straddle involves going long, i.e., purchasing, both a call option and a put option on some stock, interest rate, index or other underlying. The two options are bought at the same strike price and expire at the same time. The owner of a long straddle makes a profit if the underlying price moves […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[7],"tags":[3518,6590,6591,722,554],"class_list":{"0":"post-2480","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-future-and-options","7":"tag-futures-and-options","8":"tag-long-straddle","9":"tag-long-straddle-option-trading","10":"tag-option-trading","11":"tag-stock-option-trading","12":"entry","13":"has-post-thumbnail"},"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2480","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=2480"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2480\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=2480"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=2480"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=2480"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}