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4.1. Straddle

ProficiencyDirectionVolatilityAsset LegsMax RiskMax RewardStrategy Type
+
IntermediateNeutralHigh• Long PutCappedUncappedCapital Gain
   • Long Call   


4.1.1. Description

The Straddle is the most popular volatility strategy and the easiest to understand. We simply buy puts and calls with the same strike price and expiration date so that we can profit from a stock soaring up or plummeting down. Each leg of the trade has limited downside (i.e., the call or put premium) but uncapped upside. Assuming that the movement of the stock is enough to cover the cost of the trade, we should be profitable.


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