15. Straddles and Strangles

The straddle trade and the strangle trade are intended to take advantage of stock movement in either direction. They use a combination of a call option and a put option to benefit from a significant move up or down in the stock price.

The Straddle Trade

Upon first learning about the straddle trade, it sounds like the answer to a trader’s dream. You will hear that, with a straddle, you do not need to guess which way the stock will move. The straddle can make money if either the stock price goes up or it goes down. What could be better than that?

The basic idea of a straddle trade is to buy a call and buy a put with the same strike price. These options should also have the same expiration month, usually about 2 to 3 ...

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