1. LONG STRADDLE STRATEGY

“Long straddle option trading strategy” the direction of the market is not fixed or non-directional market, that market above is going to go up or the market is going to go down, and 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.

 

Let us understand with the help of the option chain, which strikes to buy and what should be the price?

As shown in the option chain above, there is a strike of Nifty in which Nifty is trading around 23951, which we will call 23950 as “At the money” option, in which the price of 23950CE is ₹248 and put option 23950PE is ₹178 and the expiry of both is also 26th Dec 2024. We have to buy both calls and put options simultaneously 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 long straddle option trading, 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 23950CE ₹248

(PAID PREMIUM) BUY POSITION = PREMIUM PRICE OF 23950PE ₹178

TOTAL PREMIUM = 248+178= 426 (MAXIMUM LOSS POINT)
MAX PROFIT IS UNLIMITED
 

Situation-1  If there is a rise in the market and the market goes above the level of 24100, the more we will see profit in the call option. If the market goes above 24400, then we will see a profit of up to 150-200 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 24400 on expiry day, then it will be 24400-23950=450 points, where the price of our call option is ₹248, then we will also get its price. will give a profit of 450-248=202 points from the call option. But the price of the put option complete will become ₹0, due to which we will lose the entire ₹178, so we will subtract this from the profit 202-178=24, Now we will get a total profit of 24 points.

Situation-2  If there is a recession in the market and the market goes below 23950, then we will see the same profit in the put option. If the market goes below 23700, we will see a profit of 150-200 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 23500 at expiry, then it will be 23500-23950=450 points. Where the price of our put option is ₹178, then its price will be reduced by 450-178 = 272 and we have also purchased a call option, whose price will become ₹0, so this price will also be reduced from 272. If we give, 272-178=94, then we will get a total profit of 94 points.

Situation-3 If 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 ₹23950, then the price of both call and put options will be around ₹0.

If the market expiry is around 24050, the call option price will be ₹95 to ₹100 and we will get 95 to 100 remaining of 248 and the Put option will be a complete loss of 0. 

 

If the market expiry is around 23850, the put option price will be ₹90 to ₹100. then this position will not be a full loss, but if the price of the call option becomes ₹0, then it will be a complete loss of ₹248.

(To understand this more easily, please read Option Greeks which I have explained very well.)