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Buy one call option and buy one put option at the same strike price.
Maximum Loss: Limited to the total premium paid for the call and put options.
Maximum Gain: Unlimited as the market moves in either direction.
When to use: When you are bullish on volatility but are unsure of market direction.
A long straddle is an excellent strategy to use when you think the market is going to move but don't know which way. A long straddle is like placing an each-way bet on price action: you make money if the market goes up or down.
But, the market must move enough in either direction to cover the cost of buying both options.
Buying straddles is best when implied volatility is low or you expect the market to make a substantial move before the expiration date - for example, before an earnings announcement.
Comments (5)
Peter
August 30th, 2010 at 6:26pm
You can exit the position any time - provided there is enough liquidity of course.
jignesh
August 30th, 2010 at 2:04pm
is this necesry to remain in this strategy till expiry? or one can exit before?
monu jnu
July 18th, 2009 at 5:24am
i hope this strategie is always good for volitile market u can play in blind because u r making unlimited money with limited lose in any condition of market
Sandeep
December 9th, 2008 at 10:51am
Hi Jitin,
What are you looking for exactly?
JITIN
December 8th, 2008 at 2:53am
PLZ CAN ANY BODY TELL ME HOW TO THE SAME
jitin.thukral@gmail.com
9899418696
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