Long Straddle Options Strategy is combination of two strategies we have already discussed. So you need to understand those two for clear understanding of this one. Those two strategies are
But simply buying a Call and Put does not make it long straddle. It has to fulfill two criteria as mentioned below
- Buy Call and Put of same Strike Price
- The Expiry should also be same
- Both the trades will be of same Index or stock
That is you need to buy for same strike price with same expiry then only it will be said Long Straddle. You need to use this strategy only if you feel that underlying stock or indices will have volatile times ahead in either direction. So it is one of those techniques which do not require you to know direction of movement. You just need to ensure that there will be big movement in either direction.
You can watch either the English Video or Hindi Video to understand the strategy in details.If you are new to Options trading then I would suggest you to watch or read the Getting Started tutorial on Options . That will help you understand the strategies as well. The video explains below points clearly
- When to use the strategy with example
- Profit and loss potential of it. It is high profit low loss strategy
- This is direction neutral strategy
- Low cost strategy as margin requirement is less
- Only requirement is volatility in Index or stock
English Video
Hindi Video
Conclusion
It is excellent technique if used with proper understanding. It has limited loss potential but profit potential is huge. The only criteria is stock or indices should give big move in any one direction. So you need not predict the direction as well in this case.
This is good technique to be used on Event days which is unpredictable in nature and can cause big movements in either direction. In that case you can easily make money if stock is volatile and makes good move positive or negative as direction does not matter and you do not have to predict the event outcome.
Since it is combination of two techniques you need to understand the pros and cons of those techniques before proper implementation of this one. So in case you have some confusion on those techniques it is better to revisit them before understanding this one.
Since this technique is based on Volatility it helps if applied on high volatile stocks. You can visit this page to get an idea about volatility on all F&O stocks. The article provides details on volatility and beta based on last fifteen years data so you get clear idea about the high volatile stocks which can be best candidates for applying this technique. Along with that the index or stock which have high chances of movement in either direction depending upon the outcome of results can also be best candidates for this technique.