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What is straddle strategy?
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What is straddle strategy?

A straddle is a neutral options strategy that involves simultaneously buying both a put option and a call option or selling both a put option and a call option for the underlying security with the same strike price and the same expiration date. There are two types of straddle strategy. A long straddle aims to make a profit when stock prices are expected to go up or down significantly and a short straddle earns a return when the stock prices are expected to stay stable or move in a narrow range near the strike price.

Long Straddle

A long straddle is a strategy when you expect the price of the underlying security will go up or down significantly within a certain time period. It is created by buying a call while simultaneously buying a put of the same underlying security, the same expiration date, and the same strike price. This strategy is established for a net debit (or net cost) and profits if the underlying security rises above the upper break-even point or falls below the lower break-even point at expiration.

Short Straddle

A short straddle is a strategy when you expect the price of the underlying security will stay stable or move in a narrow range near the strike price within a certain time period. It is created by a short call and a short put with the same expiration date, and the same strike price. This strategy is established for a net credit and profits if the stock price is between the two break-even prices at expiration.

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