If you aren’t much of an investor or even familiar with most financial terms, chances are you may not have heard of the Long Straddle method. This article, provided by Fidelity explains what this method is in terms of stock, examples of the formula used to calculate net cost of said stock and what the pricing structure can expect to look like at the end of its expiration term. It also outlines several strategies for working with this type of investment and suggestions on making an appropriate forecast.
- The goal of a long straddle is to profit from a big price change that is either on the upside or the downside.
- A long straddle is made up of one long call and one long put with the both options being similar in having the same stock and same strike price.
- Why profit potential is unlimited on the upside is because with the upside there is a possibility that the stock price can rise substantially.
“Profit potential is unlimited on the upside, because the stock price can rise indefinitely. On the downside, profit potential is substantial, because the stock price can fall to zero.”