Buy/Long Straddle

Buy or Long Straddle is considered as a non-directional strategy and is used when the underlying is expected to show large movements in either direction i.e. Upside or Downside.

This strategy involves Buying a Call as well as Put on the same underlying for the same maturity and Strike Price. This strategy gives the investor an advantage of a movement in either direction — a soaring or plummeting value of the underlying.

Profits can be made in either direction if the underlying shows volatility to cover the cost of the trade. Loss is limited to the premium paid in buying the options.

All that the investor is looking out for, is the underlying to break out exponentially in either direction.

Investor View: Neutral direction but expecting significant volatility in underlying movement.

Risk: Limited to the premium paid.

Reward: Unlimited.

Lower Breakeven: Strike Price – net premium paid.

Higher Breakeven: Strike Price + net premium paid.

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