Expert Chaslau Koniukh
  • Companies
  • Global investment
  • Investors
  • Terminology
  • Economy
  • Stock Market
  • World exchanges
  • Tech and Marketing
Straddle-2
Market terminology

Straddle: features of the option strategy

29.12.2021
2 min read

How you can use a straddle to profit in the market

One of the option strategies for making money on the exchange is to use the price movement of the underlying asset without reference to direction. An example of such an approach is a straddle, which includes call and put options purchased at a central strike. The strategy works as a bundle of all components, but has its own peculiarities which should be taken into account when applying the approach in a trader’s activity.
In most cases, the central strike is characterized by the highest level of liquidity, so it is possible to acquire calls and puts without much effort. The total delta of these options is approximately zero, making the straddle itself a delta-neutral strategy. If the market rises, the value of the call rises and the value of the put falls. If the futures are declining, then the put price goes up and the call price goes down. In this case, the trader gets the money regardless of the direction in which the market changes, the main thing here is its movement by the value, which is similar to the value of both options. When the market dynamics continues, the call or put, depending on whether the decrease or increase is recorded, compensates for the cost of buying options. Such an option means that the player will profit by exercising the option that went out to the money. The trader can also sell the result by taking advantage of the increase in its value.
The risk in this case is in the stability of the futures when it is in one place. Then the options gradually decrease in value due to temporary decay, which leads to a decrease in volatility. There is a possibility of losing the value of both the call and the pool.There is an option to hold the construction until the expiration date. In this case, the market movement should be at least the sum of the value of the options, regardless of the direction. If the dynamics continue, then the trader makes a profit. But this option is rarely used, since most players are focused not on building the structure and waiting for the expiration, but on selling the straddle at the maximum cost during the market movement.
An important point is to analyze the dynamics of the straddle during a price jump in the futures. For this purpose, the charts of the call and put values and the futures themselves are studied using the QUIK trading terminal.
It is also worth considering the liquidity of the options. In most cases, at the central strike, their spreads average 50-100 pips. When the strike fluctuates by several steps, the spread has a chance to reach 200-300 pips. Such a figure may decrease the expected profit. At the same time, the trader can perform a number of actions with limit orders in the options stack, which, with the right approach, will give a positive result.

Tags: Market terminology
0
Previous Post China has become the EU's main trading partner Next Post Bank of America: we should expect the surge in copper prices in the near future

You Might Also Like

compounding
Market terminology
Compounding in finance: how to estimate future income
16.02.2023
trust management in the securities market
Market terminology
Trust management in the securities market: types and advantages
19.11.2021
expiration of contracts
Market terminology
What is the expiration of contracts on the futures market
28.01.2022
short and long position
Market terminology
Short and long position on the stock exchange and their application in trading activities
19.12.2021
risk-free interest rate
Market terminology
Risk-free interest rate as an opportunity to generate income with a minimum probability of loss
08.10.2023
Average Daily Range
Market terminology
The Average Daily Range stock indicator: features of the tool
24.10.2023

Popular Posts

  • Li Ka Shing: How can success be achieved without money and education?
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023

Editor's Picks

Chaslau Koniukh
Analytics

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Press Secretary
17.08.2020
Expert Chaslau Koniukh
Analytics

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Press Secretary
18.06.2020
expert Chaslau Koniukh
Analytics

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Press Secretary
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh
Analytics

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Press Secretary
16.05.2020

Popular Posts

  • Li Ka Shing: How can success be achieved without money and education?
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023
  • Businessman Chuck Feeney: the man who gave the world Duty Free
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Instagram

© 2024 CHASLAU KONIUKH. ALL RIGHTS RESERVED. Expert in marketing and project management, international investments, financial analyst.

Menu

  • Biography
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Economy
  • Market terminology
  • Stock Market
  • World exchanges
  • Tech and Marketing
  • Analytics