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Straddle
eitherwaysStraddle is a volatility strategy that aims to make money either ways from a stock/index soaring up or plummeting down
Example:
| Instrument | Qty | Price |
|---|---|---|
| BUY NIFTY 21-Jul-26 24100 CE | 65 | 119.15 |
| BUY NIFTY 21-Jul-26 24100 PE | 65 | 135.9 |
When To Execute?
Outlook is Directional Neutral in Straddle;You are looking forward for increasing volatility with stock price moving explosively in either direction
Trade
Buy 1 lot ATM Call and 1 lot ATM Put with same expiration . Expiry is at distant away to avoid exponential time decay that happens as expiration approaches.
Advantages
Being Directional Neutral, you can participate in either ways volatility jumps
Ideal to trade Straddle for stocks where earning is due to announce
Disadvantages
Time decay is harmful to Straddle
Time day accelerates exponentially in last week of expiry
As cost to establish Straddle is significantly high. If stock fails to give desired move, one can lose the premium
Maximum Profit
Maximum Profit is unlimited beyond Lower BEP (Strike minus premium) or Higher BEP (Strike plus premium)
Maximum Loss
It is Net debit Strategy as you have bought both Call & Put. Maximum Loss is limited to total premium paid