Straddle is neither bullish nor bearish strategy; it is a market neutral strategy. Here a trader wishes to take advantage of the volatility in the market. This strategy involves buying of one Call option and one Put option of the same strike price, same expiry date and of the same underlying asset. Now a trader is bound to make profits once stock moves in either direc
This strategy is applied when trader goes long on the underlying asset i.e. he buys the stock in cash market. He has a bullish view and expects the market to rise in the near future, but simultaneously has the fear of downward movement of the markets. In order to cover his position from vulnerabilities he buys one ATM Put Option of the same underlying asset. Here, a trader wi ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
Purchase Price of Underlying + Premium Paid
LONG STRADDLE Vs MARRIED PUT - When & How to use ?
LONG STRADDLE
MARRIED PUT
Market View
Neutral
Bullish
When to use?
This options strategy is work well when and investor market view is bearish. The strategy minimizes your risk in the event of prime movements going against your expectations.
This Strategy work when the investor goes long in any stock. He expects the rise in market in future.
Action
Buy Call Option, Buy Put Option
Buy 250 XYZ Shares, Buy 1 ATM Put Option
Breakeven Point
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call + Net Premium
Purchase Price of Underlying + Premium Paid
LONG STRADDLE Vs MARRIED PUT - Risk & Reward
LONG STRADDLE
MARRIED PUT
Maximum Profit Scenario
Max profit is achieved when at one option is exercised.
Profit = Price of Underlying - Purchase Price of Underlying - Premium Paid
Maximum Loss Scenario
Maximum Loss = Net Premium Paid
Max Loss = Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG STRADDLE Vs MARRIED PUT - Strategy Pros & Cons
LONG STRADDLE
MARRIED PUT
Similar Strategies
Bear Put Spread
Long Call
Disadvantage
• There should be continuous movement of the stock and options price for this strategy to be profitable. • Time decay hurts long option if the strike price, expiration date or underlying stock are badly chosen.
Cost of the put options eats into profit margin.
Advantages
• Unlimited potential beyond the breakeven point in either direction . • Book your profit from highly volatile stocks without determining the direction. • Limited risk, more profit.
