How Can a Trader Use a Straddle Strategy to Profit from High Implied Volatility?
A Straddle involves simultaneously buying a call option and a put option with the same strike price and expiration date. A trader uses this when they expect a significant price move in the underlying asset, but are unsure of the direction.
High implied volatility increases the potential for a large move, making the Straddle profitable if the move is large enough to cover the cost of both premiums.
Glossar
Straddle Strategy
Mechanism ⎊ A straddle strategy, within cryptocurrency options trading, involves simultaneously purchasing call and put options with the same strike price and expiration date; its core function is to profit from significant price volatility in the underlying asset, irrespective of direction.
High Implied Volatility
Skew ⎊ High implied volatility, particularly when manifested as a pronounced skew in the volatility smile or smirk, signals elevated risk perception within cryptocurrency options markets.
Straddle
Strategy ⎊ A straddle is an options trading strategy involving the simultaneous purchase or sale of both a call option and a put option on the same underlying asset.