Straddle strategies

Straddle strategies

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Create calculations with up to six legs. Share your calculations on facebook and twitter or with short-links on forums, email or anywhere else. Another options data source has been added to assist in finding options on indexes. Choose the table’s price range by clicking the ‘More output options’ link under the ‘Calculate’ button. Enter the characters you see below Sorry, we just need to make sure you’re not a robot. Jump to navigation Jump to search This article is about the financial investment strategy. This article includes a list of references, but its sources remain unclear because it has insufficient inline citations.

In finance, a straddle strategy refers to two transactions that share the same security, with positions that offset one another. One holds long risk, the other short. A straddle involves buying a call and put with same strike price and expiration date. If the stock price is close to the strike price at expiration of the options, the straddle leads to a loss. However, if there is a sufficiently large move in either direction, a significant profit will result.

A straddle is appropriate when an investor is expecting a large move in a stock price but does not know in which direction the move will be. The purchase of particular option derivatives is known as a long straddle, while the sale of the option derivatives is known as a short straddle. A long straddle involves “going long,” in other words, purchasing both a call option and a put option on some stock, interest rate, index or other underlying. For example, company XYZ is set to release its quarterly financial results in two weeks.

A trader believes that the release of these results will cause a large movement in the price of XYZ’s stock, but does not know whether the price will go up or down. He can enter into a long straddle, where he gets a profit no matter which way the price of XYZ stock moves, if the price changes enough either way. If the stock is sufficiently volatile and option duration is long, the trader could profit from both options. This would require the stock to move both below the put option’s strike price and above the call option’s strike price at different times before the option expiration date. 50 days, the stock price should be either higher than 107 dollars or lower than 84 dollars. Also, the distance between the break-even points increases.

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