Traders can buy a straddle – which involves buying a Call and a Put Option – when they expect a major market move but are unsure of whether it will move up or down.
Why would you want to do this?
You wish to express your market opinion and make profit from trading the market move – independent of the direction of the move.
Example
- Say you are currently holding BTC (Bitcoin) or USDC in your wallet.
- The current BTC price is $45,000.
- Based on market analysis, you expect that the BTC price will move sharply before your options’ expiry date.
- Despite being unsure whether the BTC price will move up or down, you wish to profit from the coming market movements.
How Can Crypto Options Help?
A way to generate profit with drastic market movements (despite not having a directional view) is called a straddle strategy. A straddle involves a long Put and long Call Option.
In the above scenario, you decide to buy a BTC Call Option and a BTC Put Option, both at a Strike Price of $45,000. Each option contract costs a premium of $1,000, totalling your cost to $2,000.
What happens if the price of BTC rises?
Should the BTC price exceed $47,000, you make profit.
What happens if the price of BTC drops?
Should the BTC price drop below $43,000, you make profit.
Simply put, all you need is a significant price swing of BTC in either direction to generate a profit.