Straddle Strategy Nifty, Bank Nifty, and Fin Nifty Weekly Expiry Index Option, Most commonly used in option trading, there are two types of straddle strategies. A long straddle is called a call-and-pull option with the same price purchased simultaneously when the market is directionless and highly volatile. Second is a short straddle in which call-and-put options of the same price are sold, which is more profitable when there is no movement, a bullish or bearish market, and the market is moving up and down in a few points. But if there is a sudden boom or recession in the market, it can also be harmful. In this strategy, the long straddle is more beneficial than the short straddle in a volatile market.
Let us understand both strategies in simple language.
LONG STRADDLE STRATEGY
Long straddle option trading strategy used in a volatile market, the direction of the market is not fixed (non-directional market), and that market above is going to go up or the market is going to go down, because of any news the market can go up a lot or go down a lot, then in such a situation long straddle Option trading strategy is used.
Long straddle remember these things to make it.
1 This strategy is to be used only when the market is volatile. We do not know the market above It may go up or the market may go down.
2 There are two options, one is the Call (CE) option and one is the Put (PE) option, both of which have to be bought.
3. The expiry of both options should be the same.
4 If both the options are Nifty then they should be of call & put option of the Nifty index, if Fin nifty then it should be of Fin Nifty option only.
5 The price of both options should be approximately equal or near equal.
Let us understand with the help of the option chain, which strike to buy and what should be the price?
As shown in the option chain above, there is a strike of Fin Nifty in which Fin Nifty is trending around 21550, which we will say “at the money” option, in which the price of 21550 calls and put option is almost equal and the expiry of both is also 19th Dec 2023. Here the price of call option of Rs 21550 is ₹90.20 and the price of put option of 21550 is ₹89.90. Both call and put options simultaneously have to create a position.
Now here, if there is a bullish or bearish trend in the market, then the market movement should be higher, so that there is one option, call or put option. In this, we will get to see profits quickly, if the market easily moves 100 to 200 points up or down in any direction, then we will get to see more profits in any one option and losses will be less. But if there is a movement of 300 to 400 points in the market, then we will see more profits in the Long straddle option trading strategy, our maximum loss will be the money we have paid to buy the option, but there is no limit to the profit.
(PAID PREMIUM) BUY POSITION = PREMIUM PRICE OF 21550 CALL @90.20
(PAID PREMIUM) BUY POSITION = PREMIUM PRICE OF 21550 PUT @89.90
TOTAL PAID PREMIUM =90.20+89.90= 180.10 (MAXIMUM LOSS POINT)
AND MAX PROFIT IS UNLIMITED
PAY OF GRAPH
Situation-1 If there is a rise in the market and the market goes above the level of 21550, the higher it goes, the more we will see profit in the call option. If the market goes above 21800, then we will see a profit of up to 150 points in the call option. But in the put option, we will suffer a loss, if the market goes up on the same day we have created the position, our profit will be in even more points.
For example, if the market closes at the level of 21800 at expiry, then it will be 21800-21550=250 points, where the price of our call option is ₹90.20, then 350-90=160 will give a profit points from the call option. But the price of the put option complete will become ₹0, due to which we will lose the entire ₹89.90, so we will subtract this from the profit 160-89.90=70.10. Now we will get a total There will be a profit of 70.10 points.
Situation-2 If there is a recession in the market and the market goes below 21200, then we will see the same profit in the put option. If the market goes below 21200, we will see a profit of 350 points in the put option, but we will see a loss in the call option. If the market goes down on the same day we have created the position, our profit will be even more in points.
For example, if the market closes at the level of 21200 at expiry, then it will be 21550-21200=350 points. Where the price of our put option is ₹89.90, then its price will be reduced by 350-89.90 =260.10 and we have also purchased a call option, whose price will become ₹0, so this price will also be reduced from ₹260.10. ₹260.10-90.20=169.90 then we will get a total profit of ₹169.90 points.
Situation-3If neither a bullish nor a recession is seen in the market, as per our analysis, it does not happen, in which case we may incur a loss. So as our loss is already estimated that is the money we have invested in purchasing will be a total loss. Therefore, only 10 to 15% of our total capital should be used in this strategy.
For example, if the market expiry is around ₹21550, then the price of both call and put options will be around ₹0 or a very low price.
If the market expiry is around 21650, the call option price will be ₹90.20 to ₹100. As much as we have bought, if we have done this, then this position will not be our loss, but if the price of the put option becomes ₹0, then it will be a complete loss of ₹89.90.
If the market expiry is around 21450, the put option price will be ₹89.90 to ₹100. which I buying If we have done this, then this position will not be our loss, but if the price of the call option becomes ₹0, then it will be a complete loss of ₹90.20.
(To understand this more easily, please read Option Greeks which I have explained very well.)
Capital required for Long straddle
