Long Straddle Option Strategy

Long Straddle Option Strategy: hello friend, Today we will learn about long straddle strategy. so what is long strategy what would be the break even what would be the maximum loss and maximum profit we will learn with the help of example.

When we think that there is a huge volatility in the market and market can move in any direction so what we do, we Buy Call option of the ATM strike price at the same time we also buy put option of the same stock, same strike of the same expiry. so, if the stock moves in any direction we make profit. Remember, in this case we are buying the call and also buying the put option, so we are the paying the premium of both call and put. so if there is a huge validity in the market and stock moves in any direction we will make a profit and if the market is range bound and stock does not move in any direction we will have to bear the loss.

Long Straddle Example

Let’s understand with the help of an example. Suppose, There is a stock known as ABC is trading at 1510 and the lot size is 400 and we are buying the call option of 1500 strike price premium of Rs 40 at the same time, I am buying the Put option of 1500 strike price and I am paying the premium of Rs 30. So, total premium I am paying for both call and the put is 70. And that is my maximum loss. Now my break even point for the upper side would be 1570 and my break even point on the lower side would be 1430. So, if the market is closing between these price these range I will be making loss but if the market above 1570 or below 1430 then, I will start making the unlimited profit. I have created a payoff table below.

Maximum loss: 70 Point (28000 INR)

Maximum Profit: Unlimited

Break Event Point: 1500+40+30=1570

Break Event Point: 1500-40-30=1430

Lot Size : 1=400

Long Straddle Pay off Table

Strike Price	call Pay off	Put Payoff	Net Payoff	Profit/ Loss
1300	0	+200	+130	+52,000
1320	0	+180	+110	+44,000
1340	0	+160	+90	+36,000
1360	0	+140	+70	+28,000
1380	0	+120	+50	+20,000
1400	0	+100	+30	+12,000
1420	0	+80	+10	+4,000
1430 (Lower BEP)	0	+70	0	0
1440	0	+60	-10	-4,000
1460	0	+40	-30	-12,000
1480	0	+20	-50	-20,000
1500 (ATM)	0	0	-70	-28,000
1520	+20	0	-50	-20,000
1540	+40	0	-30	-12,000
1560	+60	0	-10	-4,000
1570 (Upper BEP)	+70	0	0	0
1580	+80	0	+10	+4,000
1600	+100	0	+30	+12,000
1620	+120	0	+50	+20,000
1640	+140	0	+70	+28,000
1660	+160	0	+90	+36,000
1700	+200	0	+130	+52,000

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