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 two to three months in the future. The reason given for doing this type of trade is that if the stock price goes up, the call will show a profit; and if the stock price goes down, the put will show a profit. The catch here is that when one option shows a profit, the other ...

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