Overview
At this point, most of us think that Nifty could move significantly, either up or down, isn’t it? If this turns out to be true, then we should definitely take advantage and make profit in option trading. The Straddle strategy suits for a volatile market. However this strategy would end up in a loss if the underlying price doesn’t move significantly and stays at or near the initial price. This strategy has limited risk and unlimited profit.
How to Execute?
We buy a Call and Put of a stock with the same expiration date. Strike price could be same or different. For example, if Nifty is trading at 5300, and we think that it can move below 5100 or above 5500 in the short term, we can buy 5300 Call, assumed to be trading at 100, and buy 5300 Put, assumed to be trading at 100. In this strategy the maximum loss is 200. Maximum profit is unlimited. Suppose Nifty suddenly drops to 4900 at expiration or before, we would make a profit of 300 in Put option and lose 100 in Call option. So the net profit is 200 points per lot. Fantastic isn’t it?
How to Exit?
We can close the positions by selling the Call and Put options either before expiry or at expiry.
4 comments:
Plz check profit cant be 400
as 100 already we have paid :D in put as premium.
HI Dinesh, thanks for your comment. I have mentioned that the net profit is 300 (400 - 100). I think you missed reading this.
Please share your thoughts in future as well.
Hi, Bro
Premium we paid is 200
100 on call and 100 on put
:D
Plz check again
Dinesh, you are right! Thanks for the correction.
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