Ladder Finance Introduce : Short-Straddle Option Strategy
Overview:
A short straddle is an options strategy comprised of selling both a call option and a put option with the same strike price and expiration date. It is used when the trader believes the underlying asset will not move significantly higher or lower over the lives of the options contracts. The maximum profit is the amount of premium collected by writing the options. The potential loss can be unlimited, so it is typically a strategy for more advanced traders.
more information : https://www.investopedia.com/terms/s/shortstraddle.asp
The Short-Straddle strategy is a traditional strategy that generates returns more safely than the long-short strategy at certain times. In this article, we’ll discuss the benefits of the short-straddle strategy, when to use it, the expected returns relative to the market, and the risks of the strategy.
Why Short Straddle strategy?
Upper and Lower limit : A short-straddle strategy sets an upper and lower limit at the same time to receive the option premium. This allows investors to make profit between the upper and lower bounds of the option, and to profit even when volatility is low. Because of this characteristic, short-straddle strategy generally benefits from longer flat market status.
Leverage the value of time : A short-straddle strategy helps you capitalize on time value. The time value of an option is related to market volatility, which you can use to maximize your profits.
Crypto Localization : There is a crypto version of the Black-Scholes model, which is widely used in the existing option market, that Ladder Finance has back-tested and optimized over a long period of time. This shows a little more stability in certain situations than a typical short-straddle strategy.
When to use a short-straddle strategy?
Utilized in flat markets : The short-straddle strategy is particularly effective in markets where stock prices are moving as flat. If you expect the stock price to move in a low-volatility range, you can use a short-straddle strategy to make profit. We’re using Ladder Finance’s algorithm to identify market trends.
Expected return relative to the market : Limited revenue: A short-straddle strategy limits further gains unless the stock price breaks out strongly above a certain level. If the stock price moves significantly in one direction, it can go beyond limiting the strategy’s profits and cause losses.
Risk of the strategy
Maximum loss limit : A short-straddle strategy has the advantage of limiting your losses, but if the stock price breaks through the upper or lower boundaries, you could lose money.
Time and volatility risk : A short-straddle strategy must account for time and volatility. The time value of an option decreases over time, and increased volatility can reduce its returns.
Disclaimer
1. The crypto asset management company shall not be held responsible for any losses incurred from crypto asset investments.
2. The company disclaims any liability for losses arising from inaccuracies in the information recognized by the investor.
3. The company shall not be held liable for losses resulting from external factors such as legal, regulatory, or government actions.
