In order to understand the straddle trade, one must understand what the term "straddle" means. When referencing human activity, to "straddle" means to stand on two legs, with each leg on opposite sides of a reference point. In essence, this strategy involves buying a put option at the top and a call option at the bottom. So in setting up a straddle trade, the trader must two positions (the put and the call), setup strike prices for each position and also set the expiry date/time. The straddle strategy is a popular trading strategy in the options market. This is illustrated this way:

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Only when you are aware of the market bias for the traded asset and the calendar of news releases, can you afford to play the straddle strategy. Under quiet market conditions, the price of the asset will not move enough for your earnings to exceed your trade costs. On the other hand, what is a binary option high volatility and an uncertainty in the market encourage the straddle strategy. Accordingly, important news releases and fundamental data announcements favour the strategy as unexpected positive or negative surprises could significantly affect prices over a short period of time. It is necessary to determine a correct timing for entering into a transaction. You need the asset price to change in order to profit from the straddle strategy. You should not only make a timely entrance into the put and call options: an essential decision on whether to start such a transaction under prevailing market conditions has to be made.

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The precise tax liability depends upon just how much you generate and lose throughout the year. Check with your local tax regulations to find out whether or not you fall over or beneath the tax limit. It is important to remember that Australia is well known for lower tax rates regarding all types of trading. In addition, Aussie traders might not even be asked to pay taxes if their earnings are below a set amount that differs by region (if you are not from Australia check our the international binary options reviews site HowWeTrade).

This is because no matter where the price is headed, the long positions for both call and put options will provide the necessary cover for profitable trades. Trading Scenarios Profit: The profit potential in a straddle trade is unlimited. All that is needed is for the price of the asset to move away from the market price at the time the straddle trade was setup.

1 option contract = 100 shares • XY is the underlying asset purchased (which could be a stock, ETF or commodity) • 50 and 55 are the strike prices of the of the put and call option respectively. • where 1 represents the number of option contracts.