When you are uncertain about the market, but expect a lot of volatility, then buying straddle is one of the strategies.
Typical example of this type of situation is around budget time, where a lot of volatility is certain, but the direction of the market is uncertain.
Straddle involves buying or selling combination of one call and one put at the same strike price and the same expiry. This is normally done at At-the-money or near – the – money strike prices.
Long straddle :
Here buy one Call (At-the-money ) and buy one Put (At-the-money )
Short Straddle: Anticipate StabilityHere one call and one put are sold at the strike price, which is at-the-money for the same expiry.
