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Long Straddle

This document discusses the long straddle options strategy. A long straddle involves simultaneously buying a call and put option with the same strike price and expiration date. It has unlimited upside potential and limited downside risk equal to the premiums paid. The maximum profit occurs if the underlying stock's price is above or below the strike by more than the total premium paid at expiration. The strategy benefits if volatility increases but is hurt if volatility decreases.

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275 views13 pages

Long Straddle

This document discusses the long straddle options strategy. A long straddle involves simultaneously buying a call and put option with the same strike price and expiration date. It has unlimited upside potential and limited downside risk equal to the premiums paid. The maximum profit occurs if the underlying stock's price is above or below the strike by more than the total premium paid at expiration. The strategy benefits if volatility increases but is hurt if volatility decreases.

Uploaded by

raj0386
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Long Straddle

Option

Under Guidence of : Prepared By :
    Praveen Kumar
Dr. Tamal Datta Chaudhuri     Rajdeep Majmudar
What is Straddle ?
 An options strategy with which the investor
holds a position in both a call and put with
the same strike price and expiration date.

 Types of Straddle strategy:


 - Short Straddle
 - Long Straddle
Long Straddle Strategy
 Also known as ‘Buy straddle’ and
‘Simply straddle’

 The long straddle is simply the simultaneous
purchase of a long call and a long put on the
same underlying security with both options
having the same expiration and same strike
price.
Risk Vs Reward
 Maximum Profit: Theoretically unlimited to the upside;
limited profits on the down side
 Maximum Loss: Limited and predetermined

 Upside Profit at Expiration:


 =(Stock Price at expiration – total premium paid) – strike
price.
 Downside Profit at Expiration:
 =Strike price - (Stock price at expiration + total
premium paid
Break-Even-Point (BEP)
 Strike Price + sum of call premium and put
premium

 Strike price – sum of call premium and put


premium
Effect of Volatility
 If Volatility Increases: Positive Effect

 If Volatility Decreases: Negative Effect


 Any effect of volatility on the option's total premium is on the


time value portion
Alternative Before Expiration

 close out the call side and then simply


maintain just a long put position

 close out the put side and then simply


maintain just a long call position.

Methodology
 Two years closing price of Nifty
 Risk Free rate = 6 %

 Enter in to contract : Monday

 Exit from contract : Friday

 Strike price : At the Money

 Payoff calculation
Vix Diagram
Pay off Diagram
Result

 Hit Ratio = 53 %

 Total Profit = 4961.869


 Thank You

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