Long Straddle

A Long Straddle involves buying a call option and a put option at the same strike price and expiry. It profits from significant price movement in either direction.

• Ideal for high-volatility conditions, where a large price move is expected but direction is uncertain.
• Buying ATM options maximizes sensitivity to price changes.
• Risk is limited to the combined premium paid for the options.
• Profits are unlimited if the price moves significantly beyond breakeven points.

Example:

• NIFTY trading at 18,000.
• Buy 18,000 Call at ₹200 and 18,000 Put at ₹150 (lot size = 50).
• Outcome:
  1. If NIFTY rises to 18,400 at expiry:
     • Call gain = ₹200 × 50 = ₹10,000.
     • Put expires worthless.
     • Net profit = ₹10,000 − ₹17,500 = ₹2,500.
  2. If NIFTY falls to 17,600 at expiry:
     • Put gain = ₹200 × 50 = ₹10,000.
     • Call expires worthless.
     • Net profit = ₹10,000 − ₹17,500 = ₹2,500.
  3. If NIFTY stays at 18,000:
     • Both options expire worthless.
     • Net loss = ₹17,500.