Options Fundamentals: Straddle Strategy

What is an Option:
It is a contract that gives the holder the right, but not the obligation, to buy an asset at a strike price, by a certain date. A “call” gives the holder the right to buy an asset while the “put” gives the holder the right to sell an asset at a predetermined strike price. And those who are involved in the market and trading of a contract are the buyers and sellers of the calls or puts.  Each contract is equivalent to one-hundred shares of a security.

Straddle Strategy: 
The Straddle requires the investor to purchase the same amount of long positions, in terms of calls and puts, to capitalize on large movements in the asset’s price.  As investors, if we perceive a significant shift in price, but are not quite sure on which direction, then this strategy can help leverage high portfolio values, and effectively, profits. It is a risky strategy to perform, but naturally, you would implement the Straddle on volatile stocks, in which they themselves are risky by nature.

Variables:
·Vo = Initial Investment
·Vt = Current Portfolio Value
·π = Profit
·K = Strike Price
·St = Current Stock Price
·Co = Call Price per share
·CoQ = Call Share Quantity
·Po= Put Price per share
·PoQ = Put Share Quantity

Value of the Strategy:
·Vo = Co +Po
·If K >= St Then, Vt = K - St
·If K < St Then, Vt = St-K