The straddle strategy is a popular trading strategy in the options market. In essence, this strategy involves buying a put option at the top and a call option at the bottom. This is illustrated this way:. I love the straddle. This is because the profit potential is unlimited. Indeed, the farther away the price of the asset on expiry is from the market price at the time of purchasing the option, the greater the profit that the trader will make.
It does not matter if the asset price goes up or down; the trader will make money. I cannot think of a better kind of trade to make in the options market. The profit potential in a straddle trade is unlimited. This is because no matter where the price is headed, the long positions for both call and put options will provide the necessary cover for profitable trades.
All that is needed is for the price of the asset to move away from the market price at the time the straddle trade was setup. The value of the straddle is calculated as follows: Losses occur when the price of the asset is unchanged at expiry, or has not changed sufficiently to surpass the trade costs. It is necessary to determine a correct timing for entering into a transaction.
You should not only make a timely entrance into the put and call options: Only when you are aware of the market bias for the traded asset and the calendar of news releases, can you afford to play the straddle strategy. You need the asset price to change in order to profit from the straddle strategy.
Under quiet market conditions, the price of the asset will not move enough for your earnings to exceed your trade costs. On the other hand, high volatility and an uncertainty in the market encourage the straddle strategy. Accordingly, important news releases and fundamental data announcements favour the strategy as unexpected positive or negative surprises could significantly affect prices over a short period of time. Binary Options That Suck.
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