Called the Straddle strategy to speculate on movements of significant market by buying a put option and call option at the same strike price.
Strategy in detail
Straddle strategy offers three possible benefits. The first is a strong movement of the market in a given direction and over a short period.
First opportunity to benefit
Suppose our investor buys a Straddle 82 cents on a given asset with an expiration date to a month. That means he buys a call option at 1.5 cents and a put option equal to 1.5 cents. In the event that the option price increases to 89 cents, so our investor will receive 7 cents premium. Deducting this amount the initial investment, you end up with a gain of 4 cents.
Another technique is to take advantage of a market moving upwards and downwards in succession from the exercise price.
Second possibility
Our investor still has its Straddle to 82 cents. If the market is changing the exercise price to 85 cents and then back down to 82 cents several times, the investor can make when the price reached 85 cents a Delta Hedging hoping that the market continues to grow up. In this case, the investor may only part of his premium. To do this, simply to become more about the call option and short the put option when the market rises and vice versa if it is declining. This technique therefore allows the investor to receive many times the gains of the delta that the situation presents itself during the term of the option.
Third possibility
The third possibility offered by the Straddle strategy on implied volatility that is used to determine the price of the option. If they change significantly over a short period, the opportunities for gain are interesting. While the implied volatility shows a significant increase in the price of the option is likely to mount him, too. Indeed, it is this volatility that is mainly used to set the value of an option. So there is a correlation between this volatility and changes in the price of the option concerned.
Conclusion
If control of the Straddle strategy requires some training it is an excellent method to minimize the risks involved in trading of binary options. Take the time to test it on some of your investments on a demo account.
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