Tue. Mar 2nd, 2021

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How to Trade the News Using the Straddle Trade Strategy?

2 min read

A straddle is defined as a neutral options strategy that involves simultaneously buying both a put option and a call option for the underlying security with an equivalent strike price and therefore the same expiration date.

A trader will take advantage of an extended straddle when the worth of the safety rises or falls from the strike price by an amount quite the entire cost of the premium paid. Profit potential is virtually unlimited because the price of the underlying security moves very sharply.

A straddle is an option strategy involving the acquisition of both a put and call option for an equivalent expiration date and strike price on an equivalent underlying.

The strategy is profitable if only the stock either rises or falls from the strike price by quite the entire premium paid.

A straddle implies what the expected volatility and trading range of a security could also be by the expiration date.

Straddle option positions thrive in volatile markets because the more the underlying stock moves from the chosen strike price, the greater the total value of the two options. Given the way that the straddle is about up, just one of the choices will have intrinsic value once they expire, but the investor hopes that the worth of that option are going to be enough to earn a profit on the whole position.

The problem with the straddle position is that a lot of investors attempt to use it when it’s obvious that a volatile event is close to occur. For instance, you’ll often hear about the worth of straddles when a well-liked stock is close to announce earnings results. Because the stock is nearly bound to move in one direction or another, straddles are often at their costliest preceding known market-moving events.

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