The Straddle Strategy -

The Straddle Strategy

The Straddle Strategy – What it means in Binary Options

Trading online with Binary Options has become a trouble-free way for the traders. Binary Option provides a lot of flexibility when it comes to investments. There are many investment strategies that can be put forth while trading to get maximum profits and minimize the losses. These Binary Options strategies are used by traders as and when it is required. An important and widely used Binary Option’s strategy is called Straddle.

 

Features of Straddle

Straddle basically means to be on both the sides. The same meaning holds good even in Binary options. The fundamental plan is to be on both ends of a trade so that you can get profits from either way. The risk factor and the extent of profit that one gets from using The Straddle Strategy depends on the type of straddle he or she uses. There are two types of straddles – long and short. Both have their own advantages and disadvantages and are applied when a certain type of market is prevalent.

 

Long straddle

  • As the name suggests, it yields profit when the strike price and the market price of the asset have a lot of difference.
  • An investor purchases a particular asset using both the options call and put. This enables him/her to straddle on both sides of the deal.
  • When the market price of an asset moves in a certain direction (up, down, side), the trader can opt to use a call or a put depending on which reaps more benefits to
  • Usually when there is a rise sensed, a put option is exercised on the asset but if it is observed that there is a decline in the value then a the call option is exercised. This keeps the trader covered on both sides of the spectrum
  • The advantage of this The Straddle Strategy is that the risk factor is low since the return value is reaped by the trader no matter how the market price of the asset moves
  • Also, a lot of profit can be made using The Straddle Strategy wisely
  • The flipside is that the strategy can be effective only when used in scenarios like volatile market. It doesn’t yield much results in other situations

 

Short straddle

  • This strategy is used while selling an asset
  • Here an asset is sold using both the options call and put at a certain strike price
  • Profits can be made when the market price of the asset doesn’t differ much from the strike price
  • The strategy is called non-directional type since the price should remain the same or vary very little for the strategy to work, unlike long straddle where movement yields profits
  • The profit got is in terms of the premium amount on the asset and the loss will depend on whether the price has varied a lot or not
  • The advantage of the short straddle strategy can be taken when the market is not moving much or is in the sideward direction. Situations such as waiting for news or analysis period of the market or halt for announcements, etc, form the sideward direction
  • When the market is not moving much, the prices of the assets don’t vary much and this span should be utilized by playing the short straddle card
  • The flip side of this strategy is that in case the market starts moving or becomes volatile then the investor has to undergo huge losses that cannot be measured prior to the investment

 

Straddling strategy is a bit tough to understand and apply. Nevertheless, it is used by many since it is a means to make good profit.

 

2 Responses to “The Straddle Strategy”

  1. Sam jordan says:

    Thank You, This article makes it easier for me to understand this binary option strategy 🙂

  2. Eura Yadon says:

    Excellent post! It is informative and well-written. The Straddle Strategy is the best for my situation 😀

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