Often considered to be one of the safest crypto options strategies that you can use to profit off of market movements and volatility – the long straddle strategy is definitely extremely popular. If not for anything else, the fact that one can profit off both upward and downward price movements makes it an easy strategy for beginners to crypto options to get their toes wet.
Should you really go for a long straddle strategy in crypto options trading though? What are the different things that you should consider before going in with a long straddle anyway? In this detailed article, you will find everything you need to know about the long-straddle strategy for crypto options trading.
What is the Long Straddle Strategy for Crypto Options Trading?
Before going into what the long straddle strategy for crypto options trading is, let’s first understand the basics of a straddle.
In the world of crypto options trading, there are plenty of strategies that you can put in place to ensure that you profit from both upward and downward price movements. However, most of these market-neutral strategies are extremely sophisticated (like iron condors and iron butterflies) and you’d be required to go in a complex pattern of buying and selling puts and calls at specific strike prices.
The straddle, on the other hand – is one of the least complex methods to achieve this. All you need to do is buy/sell an equal number of calls and puts at the same strike price and expiry, and done. You’re now in a straddle.
The type of straddle option that we’re discussing today – the long straddle strategy- requires you to buy an equal number of calls and puts at the same strike price and expiry date. Depending on your allocated budget, this can be one put and a call, or even 70 sets.
Say, for instance, you’re purchasing ETH puts and calls at (for the sake of keeping the math simple) with a strike price of $10. If the current price is $10, and it moves upwards, your call options will help you profit from this movement, while if the price drops, your put options have got you covered.
Keep in mind that the long straddle option strategy is designed to profit off the market volatility, and a sideways market will often just lead you to lose your premium.
When Should One Consider The Long Straddle Strategy for Crypto Options Trading?
If your crypto of choice is exhibiting a sideways trend, in anticipation of a breakout pending an announcement or an event, it is best for you to consider the long straddle option strategy. The event/announcement could have both a positive/negative impact on the price, with little to no indication of which way the breakout will happen.
For instance, say we’re in July/August 2022. We’re expecting the Merge to happen somewhere around September 2022. The breakout is evident, and leading to the breakout, the market exhibited sideways movement. However, with the news of miners grouping up to oppose the merge, an impending fork could have threatened a disaster in Ethereum’s price.
In this case, a long straddle Option strategy would have worked perfectly. You’d be able to purchase puts and calls at a reasonable premium while being able to cover both upward and downward volatility.
Drawbacks of The Long Straddle Strategy for Crypto Options Trading
The long straddle Option strategy, albeit an effective market-neutral strategy, has certain drawbacks that you need to keep in mind. The long straddle option is an expensive strategy, for each in-the-money put and call that you purchase can be expensive. Covering both your bases is extremely expensive, as you would need to pay the premium for both puts and calls. As time goes on, and the market continues sideways, the time value portion of the options slowly goes down in value and eventually has a significant chance of expiring worthless.
If your analysis determines that the breakout will happen either in an upward/downward direction, it would be much less expensive for you to purchase just put/call options depending on your analysis.
Hope this article gives you a detailed explanation of the different facts that you need to consider before opting for a straddle option or long-straddle strategy in crypto options trading. For more informative blogs, why don’t you check out our blog section? We promise to keep it updated with the latest updates, market news, and educational pieces about the different crypto options trading strategies that are available to you!
On Delta, you can opt for crypto options trading in Bitcoin, as well as a broad assortment of altcoins!
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