Straddle Positioning:The stock market is currently one of the riskiest investment plans an investor can engage in. Stock prices rise and plummet without warning and may lead to profit or loss in virtually no time. Many people invest in the market without knowledge of precautionary measures. Some even believe that one’s luck dictates show they stock price will behave. Those who are educated however take precautions. Straddle positioning is one such precaution. Teweles (1998) exlains that straddle positioning is a strategy that an investor may choose to pursue should they believe that stock price will either rise or fall. In order for the investor to profit, stock price must move in any direction. Straddle is therefore quite risky.
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Straddle is seen to be a useful tool in trading in the stock market. Long and short straddles are a means of making profit based on the investor’s prediction of how stock price will behave. Long straddles are preferred are preferred as they are designed such that they profit in high volatility. They also limit exposure to losses. Short straddles are seen to have unlimited risk while long straddles have limited risks.
Ansabacher, M. G. (2000). The New Options Market. New York: Wiley.
Fontanills, G. A. (2009). Trade Options Online. John Wiley & Sons.
Teweles. (1998). The Stock Market.
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