A long straddle is an options trading strategy that involves buying a call option and a put option on the same underlying asset, with the same expiration date and at the same strike price. The strategy is designed to profit from a significant move in the price of the underlying asset, regardless of whether it goes up or down.
The long straddle strategy is typically used when an investor expects a big price move in the underlying asset, but is uncertain about the direction of that move. By buying both a call option and a put option, the investor has the potential to profit from either a rise or a fall in the underlying asset’s price.
If the price of the underlying asset increases, the investor will profit from the call option, while the put option will expire worthless. If the price of the underlying asset decreases, the investor will profit from the put option, while the call option will expire worthless. If the price of the underlying asset remains relatively unchanged, both options will expire worthless.
It’s important to note that a long straddle is a high-risk strategy because it requires a significant price movement in order to be profitable. As a result, it is typically used by experienced options traders who are comfortable taking on higher levels of risk in exchange for the potential for higher returns. Additionally, since the investor is buying both a call option and a put option, the cost of the strategy can be high, which means that the price of the underlying asset needs to move significantly in order to generate a profit.Regenerate response