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Profit optimisation
Due to their special characteristics, options and warrants enable a variety of strategic positioning. The simplest is direct speculation on rising or falling prices by buying calls or puts.
However, most speculations of this kind end in a total loss: the majority of all traded options expire out of the money. Private investors can also take advantage of this, provided they have access to the EUREX: The opposite side of the option buyer is the writer, who collects the premium and hopes never to have to deliver.
There is not always a specific market expectation. Even then, options offer sensible options: Straddle and strangle can be used to speculate on a lot (long) or little (short) movement in the market. Other combinations, in turn, make it possible to neutralise volatility.
Options can also play an important role in the context of an equity portfolio beyond pure hedging purposes. Options not only make it possible to hedge risks against the payment of premiums: With strategies such as covered call writing, income opportunities can also be exchanged for additional, secure income.
Straddle
Straddle positions focus on the volatility of the market: market participants either try to profit from strong price changes in one direction or the other (long straddle) or to collect high premiums by selling two options.
Long straddle
In a long straddle, one call and one CFD contract with identical strike prices are bought. The position yields profits on the expiry date in https://exness-vietnam.asia/trader-app/ if the market moves significantly in one direction or the other and the intrinsic value of one option exceeds the premiums paid for both options together. Due to the opposing positions, one of the two options will expire worthless.
During the term, additional profits can be realised in the event of rising volatility expectations. The maximum possible profit at maturity is theoretically unlimited. The maximum loss occurs if the market does not move at all and both options expire worthless exactly at the money - at most, market participants with a long straddle can lose their stake. Long straddle positions are a good idea when market volatility is low and there are reasons for it to rise. In a volatile market environment, on the other hand, the stakes are very high.
Short Straddle
A short straddle is the opposite of a long straddle: writers sell one call and one put option with identical strike prices and collect the option premiums for both contracts. The writer usually expects only minor price changes: The maximum possible profit of a short straddle position is limited to the sum of both option premiums and is realised when both options expire exactly at the money with no intrinsic value.
Losses, on the other hand, are incurred as soon as the intrinsic value of one of the two options exceeds the sum of the option premiums collected. Depending on the direction in which the market moves, the losses can in principle be unlimited (in the case of rising prices) or find their maximum at the difference between the strike price and 0.00 (in the case of falling prices).