Editing Straddle (section)

{{Short description|Options combination in finance}}
{{about|the combination of financial derivatives}}
{{more footnotes|date=March 2016}}
In [[finance]], a '''straddle''' strategy involves two transactions in [[option (finance)|options]] on the same [[underlying]], with opposite positions. One holds [[Long (finance)|long]] risk, the other [[Short (finance)|short]]. As a result, it involves the purchase or sale of particular [[option (finance)|option]] [[derivative (finance)|derivatives]] that allow the holder to profit based on how much the price of the [[underlying]] security moves, regardless of the ''direction'' of price movement.

A straddle involves buying a [[call option|call]] and [[put option|put]] with same [[strike price]] and expiration date. If the stock price is close to the strike price at expiration of the options, the straddle leads to a loss. However, if there is a sufficiently large move in either direction, a significant profit will result. A straddle is appropriate when an investor is expecting a large move in a stock price but does not know in which direction the move will be.<ref>{{Cite journal|last=S|first=Suresh A.|date=2015-12-28|title=ANALYSIS OF OPTION COMBINATION STRATEGIES|url=http://inflibnet.ac.in/ojs/index.php/MI/article/view/3554|journal=Management Insight|language=en|volume=11|issue=1|issn=0973-936X}}</ref>

A straddle made from the ''purchase'' of options is known as a '''long straddle''', '''bottom straddle''', or '''straddle purchase''', while the reverse position, made from the ''sale'' of the options, is known as a '''short straddle''', '''top straddle''', or '''straddle write'''.<ref name="Hull 2006 options 234-236">{{cite book |last1=Hull |first1=John C. |authorlink=John C. Hull (economist) |title=Options, futures, and other derivatives |date=2006 |publisher=Pearson/Prentice Hall |location=Upper Saddle River, N.J. |isbn=0131499084 |pages=234–236 |edition=6th}}</ref><ref>{{cite book |last1=Natenberg |first1=Sheldon |title=Option volatility and pricing: advanced trading strategies and techniques |date=2015 |location=New York |isbn=9780071818780 |edition=Second |chapter=Chapter 11}}</ref>