strategyyyyyyyyyyyyyThe fluctuations in the market make predicting the price of assets very unpredictable. But today, there are a number of strategies available that can actually help traders find success in trading regardless of the fluctuations. The most sophisticated strategies that have proven to be hugely beneficial for traders are iron butterflies and iron condors.

When applying these strategies, traders are required to undertake a complex buying and selling procedure. Multiple options must be bought and sold at different strike prices to be able to earn a profit.

There is another strategy which is not considered very sophisticated, but if it is applied correctly, it can help traders accomplish their trading objectives without much hassle. This is the straddle strategy and to apply this strategy, traders must buy or sell one call and one put option. Let’s take a look at what this strategy really is and the different types that have been designed to help traders find success in the world of financial trading.

To See How to Analyse the Markets Fast & Easy – Read This Article and make sure you’re using a legit trading system.

Types of Straddle

When buying or selling call and put options, traders must ensure that they have an equal number of calls and puts. In addition, the options must all have the same expiry times and strike price. Straddle positions are of two types and these include:

  1. Long Straddle

This strategy revolves around buying a call and put option at the same strike price and having the same expiry time. This strategy basically works by taking advantage of the market’s increased volatility and the price changes that take place within it.

  1. Short Straddle

This strategy revolves around selling a call and put option with the same expiry time at the same strike price. When the options are sold, the trader is able to earn profits provided that the market experiences no volatility or very little price movements within the time frame. Profits can be at stake if the market experiences a high level of volatility.

long straddleRegardless of the movements in the market, the trader will earn profits by using the long straddle strategy. The market may move in one of three directions. It can move in the upward direction, downward direction or it can move sideways.

It becomes most difficult when the market is moving in the sideways directions because it is hard to predict whether it will follow the upward movement or the downward movement after the break. Traders must be well prepared for the breakout and there are few choices that they have.

First of all, the trader can choose a side such as up or down and hope that the movement will take place in the predicted direction.

Secondly, the trader can choose to hedge his bets and choose both sides. Doing this involves applying the long straddle strategy.

The trader can catch the markets movements when he buys a call and put option. He will have a call if the market decides to move up and he will also have a put if the market moves in the opposite direction.

Drawbacks of The Straddle Option Strategy

There are a number of drawbacks of applying the long straddle strategy. These include

  • Lack of Volatility

  • Risk of Loss

  • Expense

It is crucial for traders to follow what the rule of thumb says when purchasing options. It says that traders must make a purchase if the cost of in the money and at the money is greater than out of the money.


The Short Straddle

The drawback of the short straddle strategy is its strength. To earn profits, a call and put options are sold rather than purchasing. There are thousands of traders that have invested huge amounts of money on buying call and put options. So if you choose to sell an option, you can fill your account with the money that others have invested. However, when you opt for this strategy, you are exposing yourself to risks.

You will not lose anything as long as the market does not experience any fluctuation. The erosion of the time value as well as the value of the options will yield optimum profits. However, if the market starts to pick a direction, you will be liable for the losses and you will also have to give back any profits that you have collected.

The Perfect Time To Apply Straddle Option Strategy

Certain criteria must be met if a trader wants to apply the straddle strategy. These include the following:

  1. The market is following a sideways movement

  2. Analysts have made extensive predictions regarding an announcement

  3. There is a pending announcement or news

The reaction that comes from the market is enormous even when an announcement is yet to be made.

Good To Know:

Analysts play a huge role in the reaction of the market and they make the best predictions when any governmental announcements or earnings decisions are made.

Analysts are able to predict well in advance which forces the financial markets to behave in a certain way. The straddle strategies that you apply may be profitable or may not be and it depends on whether the predictions are right or not.

The financial markets can react in two ways after the numbers are released. The predictions made by the analyst can increase or decrease the price value following the release of the announcement. It will either move in the direction that had been predicted by the analysts or it will not perform at all.

When traders create an effective straddle strategy, they can take advantage of the movements in the market. But, the most complicated thing is to decide when to apply a long straddle and when to apply a short straddle.

Conclusion

During trading, traders are faced with a constant pressure on whether to buy an option, sell an option, and collect premiums or to give back what you have collected. But applying a straddle strategy can equalize between your gains and losses. By using the strategy, traders can basically let the market proceed in the direction that it wants to. Traders can benefit from the trend that the market is following and gain from being at two places at the same time. Basically, it means that with both call and put options at the same time, traders can minimize their risk of losses.

How to Choose Binary Broker?

right choiceIn order to start trading online you need to open an account with legit and trusted broker. In this field there are numerous non-regulated brokers, most of them with shady reputation.

Still, we are struggling to find the good ones and provide you with their unbiased reviews and customer feedbacks. Trading binary options is not absolutely free of risk but we can help you minimize it.

By researching the market daily and following the financial news, the team at Top10BinaryStrategy is always up to date with the latest alerts, and upcoming launches of trading systems, and brokers.

We advise you to Open Account with Top Rated Broker OR Choose from Our List.

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