Options Straddles are an options trading strategy in crypto markets involving the simultaneous purchase or sale of both a call option and a put option with identical strike prices and expiry dates on the same underlying cryptocurrency asset. This strategy capitalizes on or hedges against volatility.
Mechanism
A long straddle profits from significant price movement in either direction, as the investor gains if the underlying crypto asset’s price moves substantially away from the strike price. Conversely, a short straddle benefits if the asset’s price remains stable, allowing both options to expire worthless or with minimal value.
Methodology
Implementing straddles necessitates a clear directional or non-directional view on future market volatility. For a long straddle, high volatility is anticipated, while for a short straddle, a range-bound market is desired. Risk management involves closely monitoring implied volatility and the underlying asset’s price action, often requiring adjustments or closure before expiry to secure profits or limit losses in dynamic crypto markets.
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