Category: 

What is a Bull Straddle?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 August 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Due to synthetic materials and furnishings, new homes burn about five times faster than those built 30 years ago.  more...

September 25 ,  1789 :  The US Bill of Rights was adopted.  more...

As a strategy that is often employed when market conditions tend to indicate a rise in prices, the bull straddle makes good use of employing a long position with both a put and a call option. The basic idea behind the bull straddle is to time the execution of the put option and the call option so that the strategy results in taking advantage of current market conditions to create profit, without a great deal of risk of incurring a loss.

Sometime referred to as a callong straddle, the bull straddle is the opposite of a short straddle, which involves the usage of a short position with put and call options. A long position is essentially a condition of actually owing some type of security, commodity, or contract. Holding on to that ownership as the price or value of the security rises will help to increase the value of the portfolio, and will ultimately result in the creation of profit that can be generated at the time of sale and used to invest in other long positions. This continual process of perpetuating the bull straddle allows the investor to constantly be in a state of expanding the worth of the portfolio.

Ad

One of the more attractive aspects of the bull straddle is that the strategy tends to carry a relatively low amount of risk to the investor. In the event that the acquired commodities are not performing at the level anticipated, the investor can choose to take two different approaches. If the security is not rising as quickly as anticipated, the investor may choose to hang on to the commodity for a longer period of time, to see if the anticipated rise in price does take place at a later time.

The second option is to simply sell the securities at a more modest profit, and use the proceeds to secure new investments to create a fresh bull straddle. With a little luck, the new investments will demonstrate potential to rise in an upcoming bull market environment, making the next bull straddle more successful.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email