In order to understand the position, it is also important to know the pros and cons of straddle. Straddle could be a good strategy when it enters potential income for both downside and upside. If the stock trading is at $300 for instance, you will pay $10 premiums for call and put options at a strike price of $300. In this scenario, if the equity moves to upside, you can capitalize the call.
In the same sense, if it moves to the downside you could capitalize the put. So basically, straddle could yield the profit or the pros during the rise or fall of the stock price. Investors tend to make sure about the current news that impacts the trading, so they use straddle to mitigate risks. Because this strategy could set positions in advance of both upside or downside swings. The cons condition of straddle happens in this kind of analogy: in order to get a profitable position, you must pay premiums for equity.
In the same calculation, you must pay at least $10 for call and $10 for put. It means that if the stock price moves from $300 to $310 only, your net position is at loss. Straddle positions tend to result in profit when there are material and large swings in the price of equity. Then, it depends on the way the stock price breaks. This is because one option could be guaranteed to not be used. This could be accurate especially for the equity having little to no price movement. It could yield both options to either unusable or unprofitable. This ‘loss’ could be in the higher transaction costs because opening more positions is comparable to a one-sided trade.
