Hi All, I want to know what is a straddle strategy in terms of Futures and options trading ?
I have been reading up on Barings bank for a college presentation and it says that straddle strategy was used. I can’t find a clear explanation for that. Thanks in advance.
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A straddle means buying a call and a put with a strike price targeting the most current price, aka “at the money” price. When you buy a straddle you need the price to make a huge move in either direction, otherwise you wasted your money when the straddle contract expires. The other side of the coin is the counterparty that sold you the straddle. They get to keep the fee you paid and not lose anything as long as the price ends up exactly at the strike price you bought. You can play both sides of the fence and either buy or sell the straddle. Buy if you think the price will make a huge move in either direction. Sell if you think the price won’t budge. Profit can be huge when you buy and the price explodes or crashes. When you sell, the only profit is the premium/fee you were paid.
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