A systematic option trader or strategist thinks about purchasing or selling multiple types of trading contracts concurrently because it is an optimized investment plan. This is an extremely efficient and cost-effective method through which investors can protect themselves from future market movements and price speculations.
When it comes to crypto trading, the crypto options have a finer edge over future contracts due to their unpredictable nature. Crypto options are dependent upon multiple factors such as general volatility level, remaining time for expiration, inferred volatility and the relation between the current price and the crypto options, all of these directly affect the entire vigor of the options trading contract.
That is why the revenue generated from crypto options is not just the ramifications of the concealed crypto assets. More and more institutional investors are becoming increasingly interested in crypto options making it one of the rapidly growing and popular trading contracts. Due to the wide range offered by the crypto options, retail investors and traders are also taking a huge interest in the option trading strategies.
The straddle option is one of the prominent and efficient trading options available in crypto options trading and it is particularly applicable in the case of dynamic crypto assets. Let us look at the elementary information on the straddle option and how it works.
An introduction to long straddle option in crypto options trading
A straddle option is a particular type of crypto options trading strategy where an investor or trader purchases the same assets but both of them have two separate option contracts. In these two option contracts, the strike price of the fundamental assets stays the same while the contracts are of opposite positions from each other.
To put it more simply, in this trading strategy the strike price, and expiration date of the assets remain similar while the investor purchases both the put and call option. When the investors and buyers can guess the intense movement in price but do not know the path it will take, they can certainly make use of the straddle option.
How does the straddle option work?
To know how the straddle option works in crypto options trading we can look at the same with an example. For instance, an individual investor named Arthur thinks that the price of BTC will go through volatility and that is why using the straddle strategy Arthur purchases a BTC call and put option from Delta Exchange with the same expiry date and strike price.
Let us assume that the strike price is $40,000 and it will expire on 26th September 2022. The cost of the contract is $6000 each. Now Arthur will certainly profit if the price of BTC is below $28,000 or more than $52,000.
In this particular case,
Upside Break-even = Strike Price + The Two Premiums Paid
$52,000 = $40,000 + ($6000+$6000)
Downside Break-even = Strike Price – The Two Premiums Paid
$28,000 = $40,000 – ($6000+$6000)
How much can a trader benefit from the straddle option?
Hypothetically, the profit traders and investors can receive from the upside is unlimited if Bitcoin or other crypto asset continues to increase without being held back. Simultaneously, the profit users can make from the downside is significantly high but limited because the price of Bitcoin or other crypto assets can never become negative.
The straddle option strategy (be it long or short) is an already proven crypto options trading strategy in the market through which traders and investors can effectively manage their positions and hedging in the market. If you are a beginner then you should receive more information on the risks involved as well as understand the volatility of the market before you enter crypto options trading.