The straddle is a very complex trade strategy for classic warrants, which is applied in both directions, ie call and put on an underlying. The levers can run differently, which is why investors are using a straddle strategy. It is speculated that a warrant for a favorable price course will win much more than the other warrant loses. Call and put are bought at the same time.
The basic principle of this strategy is neither previous day to apply to CFDs, binary options or knock-outs as it is based on the Greek key figures of the warrants. If call and put the same course, it is not useful to apply this strategy. Nevertheless, there are always investors who want this website the to “straddeln” on CFDs or even binary options. Only in rare cases does the implementation succeed, since the straddle strategy originates from the 70s and assumes that warrants can move very differently with the underlyings.
Graphic: Covered straddle strategy:
Basically the straddle strategy only works when underlyings have strong trends. In which direction the trend is not important, which is why currency pairs (Forex) are very suitable for this new from this source strategy. Investors buy a call, put, and a straddle to the underlying if the price has dropped temporarily (sideways). In the case of the warrants, the following must be observed so that the straddle actually works:
- Both warrants must be close to the money and the base price straddle calls are slightly above and the straddle put slightly to the basic rate. In addition, both options must be equipped with a lever if they are in the money. If, on the other hand, they are out of money, the lever automatically drops. At a certain point in time, the underlying price will now move out of the range website link some accordingly, whereby an option will be listed in the money. In addition, the leverage increases with one option, and the other decreases, which means that the option in the money wins more than the other option loses.
- Another important condition for the functioning of the straddle strategy is that the price of the underlying is very fast and shows a strong movement and moves in the right direction. Otherwise, both warrants would lose their value by the time value he has a good point person and the straddle has no chance to win. For this reason, it is always advisable to always select warrants with a long term, since the time value declines sharply at the end.
It is natural that a straddle is difficult to construct. The selection of the warrants usually works for a moving stock exchange overnight. If providers of the straddle strategy promise a 100% profit and do the work for the investor, this is highly questionable. Like all other constructs, investors must over at this website from always be aware that a straddle can also be lost.
The application of the straddle strategy is only meaningful if an underlying assumes that a continuing trend is emerging. It is ideal if the trend is imminent, because then the chances are high that the straddle wins with warrants. Currency pairs (Forex) with their strong price fluctuations are just as good. However, if the above conditions are not met or there is doubt, the strategy should not be applied.
Since classical warrants are very difficult to calculate in price, it is also hard to find the right warrants. It is, of course, sites she also difficult to predict the course of the market. Some investors construct straddles on CFDs or knock-outs, where warrants are only procyclically added when a trend is apparent. This strategy is see see an alternative to the classic straddle strategy.
The difficulties associated with the straddle strategy have already been mentioned. The advantage of the strategy is that profits of up to 1000 per cent are possible if a warrant is made into money by means of the pronounced trend. Since the other warrant is forfeited, up to 900 per cent profit could be achieved here. In addition, no stop-loss is required because, finally, the warrants will hedge each other.
These advantages are counterbalanced by the fact that market movements are fundamentally unpredictable. So