straddle investment & finance definition
trading strategy that involves the simultaneous purchase and sale of options. A
long straddle is the simultaneous purchase of a put and a call. A short
straddle is the sale of a put and a call. A straddle is used by a speculator
who thinks that asset prices will move significantly in one direction or
another. However, if an investor expects prices to remain stable, he can sell a
See straddle in Wall Street Words
- In futures, the purchase of a contract for delivery in one month and sale of a contract for delivery in a different month on the same commodity.
- In options, the purchase or sale of both a call and a put, generally with the same strike price and expiration date. The buyer of a straddle benefits from large price fluctuations in the underlying asset, while the seller of a straddle, who collects the premiums, benefits from small price changes in the underlying asset.
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