The Straddle Strategy

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Forex Straddle Trading Strategies – MT4 Trade Panel Software

Updated: September 21, 2020

Welcome to the Forex straddle trading tutorial with my Metatrader Trade Panel.

If you’re interested in straddle trading, you’ve reached the right place – especially if you’re using Metatrader, where you ideally want a Metatrader app to provide the correct functionality.

The panel has a few pre-programmed straddle strategy templates that you can deploy quickly at the click of a button, while at the same time you remain in full control of what your overall risk will be.

I will walk you through each strategy, their concept, how they work, and what you can do with them.

The Classic Straddle Trading Strategy Explained

The text book definition of a straddle trade is when you place a buy and a sell order at the same time.

This approach is used by a lot of news traders.

They place a buy stop above a technical high, and a sell stop below a technical low – when the news data is announced, they hope to catch a breakout as the market moves through one of the two pending orders.

Essentially you’re ‘trapping’ price with two pending orders, and catching the breakout out of one end of your trap.

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The example above shows a buy and sell stop order placed around the outside of a candlestick. This is the classic way to do it.

Now the news trader’s logic would be, if the data comes out good, the market will rally and trigger my buy order, and if it’s bad, then the price will drop and trigger the sell.

Of course there is always the risk with highly volatile events that you get bad whipsawing, throwing the market price up and down dramatically, triggering both orders and stopping them both out before you can blink.

It’s more common than you think.

So I don’t really participate in news trading, and those who I know who have, only have horror stories to tell.

This configuration exposes you to double the risk, because you’ve likely placed the two orders without factoring that into your lot size.

Let’s look at a smarter way to do this…

A More Controlled Straddle Trade Approach With The Panel

We can get a bit more control with our straddle trade by using the OCO functionality on the panel – or more specifically, OCG.

We covered the ‘order cancels order’ types in the previous tutorial. If you’re interested in this, I suggest you stop and read the OCO order tutorial first.

If we want the same kind of straddle order that I demonstrated above, but this time when one order is triggered, the other is canceled – we can do that very easily with the OCG function.

Open the trade panel and do the following:

  • Set the entry strategy to breakout
  • Set stop loss setting to candle high/low
  • Check the ‘Assign Trade To Group’ box
  • Apply a number not in use by any other trades
  • Apply any other settings from the panel you like
  • Press Buy

Now the buy part of the straddle order is placed. To complete it we more or less just press the sell button.

  • Set the panel options exactly how you did for the buy trade component
  • Make sure ‘Assign Trade To Group’ is checked
  • Assign the trade to the same group number as the buy trade
  • Press Sell

Now you’ve got a managed straddle trade set up.

When one of those breakout orders are triggered, the other is canceled by the panel, just like a classic OCO order.

The obvious benefit here is you reduce your risk exposure by allowing only one trade to go live, in contrast to the first example – where you would just leave two pending orders open, and whatever happens, happens.

This configuration only gives you the shot on the one initial breakout you’re triggered into. Sometimes the market will break one way, whip back the opposite way, trigger the other order, and stop them both out.

That’s the scenario we’re trying to avoid with the OCO configuration.

It comes down to what you’re trying to achieve, but you can always exploit the panel’s options to make something work for you.

Stop Out Recovery Straddle Trade Strategies

The panel comes with some pre-set straddle strategy templates which ‘extend’ onto your primary trade configuration.

When you set up a trade on the panel, and opt into a straddle strategy, the panel will open a second order with the straddle strategy applied to it.

These straddle strategies are designed to work like recovery money management ie. If your trade fails, the straddle trade goes live in that moment, and triggers a trade in the opposite direction.

The idea here is to turn a losing trade, back into a winner, without exposing unnecessary risk.

Let’s walk through the straddle recovery strategies that come with the panel…

Straddle Mirror Trade

The mirror trade is the easiest to explain.

After the panel sets up your initial trade, it will then place another trade in the opposite direction, but just flip your entry and stop loss prices.

This means the straddle trade entry price will be located at the same price as your primary trade’s stop out price.

Think about that, it means if your original trade is stopped out, in that same moment, the straddle trade will kick in and go live.

Take a look at the example below.

What I’ve done here is targeted a reversal candlestick pattern – a rejection candle.

I’ve asked the panel to do the classic 50% retracement entry strategy on it, and place the stop below the candle low.

At the same time I asked the panel to place a straddle mirror trade – which as I mentioned above is a trade in the opposite direction built around reversing the stop loss and entry price of your original trade.

So in this case, lets say your buy trade fails, the candlestick pattern doesn’t work and causes you to be stopped out – all the internal rage builds up within you and you want to throw your computer out the window… kidding.

When the buy trade fails, the straddle kicks in, and has the potential to make your loss back, plus potentially some profit – depending on what your target is like.

Normally when a trade fails the market explodes in the other direction.

These straddle strategies are designed to capitalize on moves after losing trades.

Straddle Trade Around A Candlestick

The second straddle option we have is to straddle around the ‘entry candle’.

Meaning, whatever your target candle is set to in your entry strategy options – is what the straddle strategy will use as a frame work for building the recovery straddle order.

The idea is the same as the the mirror trade strategy, we use your original trade’s stop loss as the entry price for the straddle trade, so when your original trade gets knocked out, the straddle trade is triggered.

The only difference between the ‘Use Entry Candle’ and ‘Mirror Trade’ is the way the stop loss is placed.

Mirroring the original trade may provide too aggressive of a straddle stop loss. Like the example with the retracement entry, the stop being placed in the mirror trade version is a little tight.

In this strategy we use the target candle’s high or low for the stop loss placement.

Take a look at the example below.

This is exactly the same trade example as we used before, the only difference is we switched the straddle strategy to ‘use entry candle’.

Notice the only thing that has changed is the stop loss placement, which is now at the entry target candle’s high.

If we were entering a sell trade initially, a buy straddle would be set up with the stop below the low of the target candle.

In this case, the straddle trade is more conservative, providing a more sensible stop loss for the straddle trade.

Same principle, if the original trade idea fails, the straddle trade kicks in and will hopefully make the loss back with it’s returns.

Important Notes About Straddle Trades

What if your original trade works out, is the straddle trade going to sit there forever triggered?

No, the panel will cancel your straddle trade pending order if your original trade hit a 1:2 risk reward profit target.

The logic here is that if your original trade hits 2x, then that trade idea is working out in your favor and there is no need to keep the straddle trade open.

If your straddle trade gets triggered first, but your primary trade hasn’t been triggered yet, what happens?

Well the panel simple deletes the original trade’s pending order. Since the straddle trade got triggered first, that means your original trade idea is invalidated and therefore we can get rid of it, just leaving the straddle trade to go to work.

Once your straddle trade is triggered, you’re free to adjust it’s target price. I wouldn’t recommend adjusting the stop loss or entry price as you will mess up the risk profile, and really the overall structure of how the straddle trade wants to work.

The risk you specified in the risk settings of the panel will be portioned equally into the straddle trade.

If you risk $1000, then $500 will be allocated to your original trade, and $500 to the straddle trade.

This was done to prepare for the ‘worse case scenario’ situation where your trade and the straddle trade get stopped out by whipsawing in the market.

In that event of a double stop out, you will not lose more than you intended. So make sure you keep that in mind when you set up your risk.

Some traders might opt in to double their normal risk. Using the same example, they might tell the panel to risk $2000, so $1000 risk is allocated to your trade, and the straddle trade.

It’s up to you how you want to risk your money, just know the panel will always try to portion what you tell it to risk into all the orders it must open.

Take Home Message

To keep it simple, there are two types of straddle trading approaches explained in this tutorial

  • the classic double breakout order strategy
  • recovery money management geared straddle trading strategies

The panel can accommodate both, depending on what your strategy/goal is. Just use the appropriate features used on this panel to achieve what you need.

Recovery management with straddle trades is a really cool concept that I designed myself. Just make sure you read the tutorial from top to bottom so you know how the panel handles events – especially the ‘Important Notes About Straddle Trades’ section.

If you use these straddle systems. please let me know how it goes for you in your trading, or leave a comment. I hope it does help a lot.

Guys, enjoy the panel and as always – best of luck on the charts!

Option Straddle (Long Straddle)

The long straddle, also known as buy straddle or simply “straddle”, is a neutral strategy in options trading that involve the simultaneously buying of a put and a call of the same underlying stock, striking price and expiration date.

Long Straddle Construction
Buy 1 ATM Call
Buy 1 ATM Put

Long straddle options are unlimited profit, limited risk options trading strategies that are used when the options trader thinks that the underlying securities will experience significant volatility in the near term.

Unlimited Profit Potential

By having long positions in both call and put options, straddles can achieve large profits no matter which way the underlying stock price heads, provided the move is strong enough.

The formula for calculating profit is given below:

  • Maximum Profit = Unlimited
  • Profit Achieved When Price of Underlying > Strike Price of Long Call + Net Premium Paid OR Price of Underlying

Limited Risk

Maximum loss for long straddles occurs when the underlying stock price on expiration date is trading at the strike price of the options bought. At this price, both options expire worthless and the options trader loses the entire initial debit taken to enter the trade.

The formula for calculating maximum loss is given below:

  • Max Loss = Net Premium Paid + Commissions Paid
  • Max Loss Occurs When Price of Underlying = Strike Price of Long Call/Put

Breakeven Point(s)

There are 2 break-even points for the long straddle position. The breakeven points can be calculated using the following formulae.

  • Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
  • Lower Breakeven Point = Strike Price of Long Put – Net Premium Paid

Example

Suppose XYZ stock is trading at $40 in June. An options trader enters a long straddle by buying a JUL 40 put for $200 and a JUL 40 call for $200. The net debit taken to enter the trade is $400, which is also his maximum possible loss.

If XYZ stock is trading at $50 on expiration in July, the JUL 40 put will expire worthless but the JUL 40 call expires in the money and has an intrinsic value of $1000. Subtracting the initial debit of $400, the long straddle trader’s profit comes to $600.

On expiration in July, if XYZ stock is still trading at $40, both the JUL 40 put and the JUL 40 call expire worthless and the long straddle trader suffers a maximum loss which is equal to the initial debit of $400 taken to enter the trade.

Note: While we have covered the use of this strategy with reference to stock options, the long straddle is equally applicable using ETF options, index options as well as options on futures.

Commissions

For ease of understanding, the calculations depicted in the above examples did not take into account commission charges as they are relatively small amounts (typically around $10 to $20) and varies across option brokerages.

However, for active traders, commissions can eat up a sizable portion of their profits in the long run. If you trade options actively, it is wise to look for a low commissions broker. Traders who trade large number of contracts in each trade should check out OptionsHouse.com as they offer a low fee of only $0.15 per contract (+$4.95 per trade).

Similar Strategies

The following strategies are similar to the long straddle in that they are also high volatility strategies that have unlimited profit potential and limited risk.

Опционная стратегия стрэддл. Как получить прибыль?

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Стрэддл (от анг. straddle) — комбинированная торговая стратегия, подразумевающая одновременную покупку опционов колл (на повышение) и пут (на понижение). Причем цена и дата исполнения опционов должна быть одинаковой.
Иногда стрэддл называют «стеллажом» или «стеллажной сделкой».

Данная стратегия является очень популярной среди трейдеров, особенно во время высокой волатильности (переменности) рынка.
Применяя стрэддл, игрок рассчитывает на получение прибыли при сильном и резком изменении котировок в следующий период. Например, когда на рынке возникает неопределенность в результате таких событий как публикация квартальных отчетов, выход макроэкономической статистики и других.

Опционы могут быть:
— ATM (at the money) — около денег, когда цена исполнения (страйк) близка к базовой котировке. Например, текущая цена на нефть $50. Страйк опциона $50. Опцион около денег.
— OTM (out of the money) — вне денег, когда цена исполнения ниже базовой котировки (не прибыльный). Цена на нефть $50. Страйк опциона колл $70. То есть на текущий момент он вне денег. Если страйк опциона пут $30, значит он также вне денег;
— ITM (in the money) — в деньгах, когда цена исполнения выше базовой котировки (прибыльный). Цена на нефть $50. Страйк опциона колл $30. То есть, если сейчас игрок использует опцион, то он получит прибыль $20 (50-30). Опцион в деньгах. Опцион путт будет в деньгах, если страйк $70.

Для минимизации рисков следует использовать опционы около денег.
Различают короткий и длинный стрэддл. Если игрок покупает опционы, значит, он использует длинный стрэддл, если же продает — короткий.
Короткий стрэддл следует применять тогда, когда волатильность практически нулевая. Если трейдер продает одинаковые опционы колл и пут, он получает прибыль (премию опционов). Когда срок опционов истекает, и на рынке не происходит значительных колебаний, игрок не несет потерь и забирает всю премию. Но если цена резко пойдет вверх или вниз, трейдер будет нести неограниченные убытки. Рассмотрим пример.

Акции «Газпрома» на 1.01 котируются по 140р.
Трейдер продает опционы колл и пут за 10р. и 20р. соответственно. Срок исполния 1.02, цена – 140р.
Сейчас у трейдера имеется 30р. прибыли. Если цена акций до 1.02 не будет выходить за предел, то игрок сможет забрать эти 30р. В обратной ситуации он понесет убытки.
Промежуток цен, при котором трейдер не понесет убытков, колеблется в пределах 110р. (140-30) и 170р. (140+30). Если цена достигнет, например, 190р., убытки составят 20р. (190-70). Другими словами, трейдер должен будет выполнить обязательство по опциону.
С длинным стрэддлом ситуация абсолютно противоположная. Покупая стрэддл, трейдер рискует лишь стоимостью опционов. Но если котировки значительно изменятся, и неважно как (повысятся или понизятся), тогда игрок может получить неограниченную прибыль. Исходя из этого, можно сказать, что длинный стрэддл намного эффективнее, нежели короткий.

Преимущество данной стратегии отображается в следующем примере:
На 1 января акции «Роснефть» торгуются по цене 250р.
Трейдер покупает опционы:
— Колл за 5р.
— Пут за 10р.
Суммарные затраты 15р (5+10).
Цена исполнения опционов — 250р.
Сроки — 1 февраля (как колл, так и пут).
Чтобы покрыть расходы, акции должны подорожать или подешеветь на 15р. Например:
На 7.01 акции «Роснефть» котируются по 265р. Трейдер с помощью опциона колл может купить акции по 250р., и тут же реализовать их по рыночным ценам за 265р.
Обратная ситуация. На 7.01 акции котируются по 235р. Сейчас игрок может продать акции с помощью опциона пут по 250р. и купить их по 235р.
В обеих ситуациях трейдер покроет убытки, то есть выйдет на ноль. Если же до 1 февраля цены останутся в пределах 235-265р., игрок не сможет получить прибыль и понесет убыток в размере 15р. Соответственно, когда цена выйдет из этого предела трейдер получает прибыль.

Плюсы стрэддла:
— Стратегия не сложна для освоения, ее даже можно сравнить с рулеткой (когда игрок одновременно делает ставку на красное и черное;
— Прибыль будет при любых значительных изменениях (рост или падение цен);
— Коэффициент прибыли достаточно высок и достигает 1.85;
— Риск ограничен только премией опционов;
— Для совершения сделок не требуется большая сумма на счете.

Минусы:

— Опционы около денег бывают весьма дорогими;
— Одновременно покупать опционы можно не у всех брокеров. Поэтому есть риск приобретения опционов с различной ценой исполнения;
— Цена актива должна сильно зайти за предел (точку безубыточности), а это происходит не всегда.
Опцион — очень интересный финансовый инструмент. С его помощью игрок может расширить свои возможности на рынке. При грамотном использовании стратегия стрэддл еще более увеличивает шансы на выигрыш. Самое главное, что даже новички могут свободно освоить данный метод торговли и сразу инвестировать собственные деньги, как только зарегистрируют счет.
Читайте также:
Виды стратегий опционов
Опционы как реальный вид заработка доступный для большинства людей

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