11.43Straddle (Long)
1What is it?
Buy a call and a put at the same strike (usually ATM).
2Why does it exist?
When it is used: You expect a big move but don’t know the direction (e.g. before a major event).
3Diagram
Max profit
Unlimited
Max loss
₹24,700
Breakeven
₹24,620 / ₹25,380
4Calculation
- Pay 200 + 180 = 380 points.
- Expiry 25,800 → (800 − 380) × 65 = +₹27,300.
- Expiry 25,000 → −₹24,700.
- Maximum profit: Unlimited on the upside; large on the downside
- Maximum loss: Total premium: 380 × 65 = ₹24,700 (if expiry exactly at 25,000)
- Breakeven: 24,620 and 25,380
5Risks
- Limited-risk position: the most you can lose is known in advance.
- Premiums shown are hypothetical; real premiums depend on volatility and time to expiry.
6Quick revision
- Max profit: Unlimited on the upside; large on the downside
- Max loss: Total premium: 380 × 65 = ₹24,700 (if expiry exactly at 25,000)
- Breakeven: 24,620 and 25,380
7Knowledge check
Q1. Straddle breakevens with strike 25,000 and total premium 400?Show answer
24,600 and 25,400.
Q2. Worst outcome?Show answer
Expiry exactly at the strike.
Q3. What is a short straddle’s risk?Show answer
Unlimited, the opposite position.
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