In trading, some days you’re confident prices will rise, others you expect them to drop, and some days you think prices will stay steady. Usually, your trading depends on this prediction.
But what if you’re certain the price will move significantly but can’t guess which way? Many traders won’t trade without knowing the direction. But with straddle and strangle options, you can trade without picking a side.
Here’s a breakdown of these strategies with examples, advantages, and disadvantages.
**What Is a Straddle?
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A straddle involves buying both a call and put option at the same strike price and expiration.
This is ideal if you think the asset will move sharply but you don’t know the direction.
*Straddle Example
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Consider a stock at $50, with earnings due next month. The call option costs $8, the put $7.
You buy both, paying $15 per share in premiums or $1500 for 100 shares.
If the stock moves more than $15 up or down, you profit.
Advantages
You don’t need to guess direction.
Risk is limited to premiums paid.
Can be applied to stocks, indices, or forex.
Disadvantages
Only works well in volatile markets.
Higher premium costs.
Needs active monitoring.
Understanding the Strangle
A strangle is similar but uses different strike prices for the call and put.
It’s useful if you have some idea of direction but want to hedge.
*Strangle Example
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Same stock at $50. You buy a call at $55 and a put at $45.
If price moves beyond these strikes enough, you profit.
Premiums paid are usually less than a straddle.
Benefits
Lower cost.
Limits risk.
Provides downside protection even if you expect price to rise.
Drawbacks
Less profit if price moves only slightly.
Complex for new traders.
Straddle or Strangle?
Choose straddle if you expect big moves without directional clues.
Choose strangle if you lean toward a direction but want protection.
For more learning, explore trading books or webinars.
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