Naked options? For novices. Now that we've discussed the theory behind vertical spreads, we are ready to move to straddles!
What is a straddle?
When buying a straddle, the trader buys both a call and put at the same option price. The investor makes money regardless of the direction of the stock. However, it depends on how much a stock increases or decreases.
Let's analyze when we profit or lose when buying straddles! But first we need to recall when we profit when buying naked calls or options. When the price is above the break even price (strike + premium paid) for a call, we profit. When the price is below the break even price (strike- premium paid) for a put, we profit. SImilarly:
Price is greater than call break even price or less than the put break even price: Profit!
Price is not within the aforementioned range: Loss. Your maximum loss is capped at the premiums paid for both options.
Eighteen-year old trader, future connoisseur of options.
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