There are a few more important recent events that will affect the direction of the stock market this year.
As with the non-farm data of March 10 last week, the inflation data for March 14 for this week.

Most intriguing, however, is the Fed rate decision on March 22 next week.
The movement of interest rate decisions has the potential to cause greater stock market volatility.

For this situation, a multi-sighted trader may chooseThe Long Call Strategies that sighted traders may chooseLong PutStrategy.
But the market's direction is difficult to predict, and more traders actually find it difficult to see the direction of emptiness.

So, is there a suitable option strategy that is suitable for such a scenario where the market will fluctuate significantly after the market but the direction of volatility is unclear?

The answer is: yes. This strategy is called buying a long straddle.

First,【Introduction to Strategy】

1. The strategy consists of:

Buy Call+Buy Put

2. Applicable Scenarios:

After judging a major event, the market will fluctuate significantly, but the direction of the volatility is not clear, and it may rise or fall.
For example, after the release of the Federal Reserve's interest rate decision, after the release of corporate financial statements, the release of CPI data, etc.

3. Profit and Loss Analysis:

Max Loss = Net Option Monity* Contract Multiplier* Number of Contracts
Maximum Gain = Unlimited
Profit and Loss Balance Point 1 = Stock Option Price+Net Single Stock Option
Profit and Loss Balance Point 2 = Line Option Price - Net Single Stock Options

4. Strategic Features:

① The strategy has limited losses and unlimited potential profits.
The biggest loss of this strategy is the cost of buying options, and the potential profit is unlimited due to the possibility of unlimited profit in the buy call section.

② The strategy does not depend on the direction of the stock's after-market price changes.
Buy call bullish, buy put bearish, combine to hedge the directionality, while buying the same call and put with the other elements, theoretically achieving full hedging on the direction.

③ The loss of time value is unfavorable to the strategy.
Time attenuation is unfavorable for option buyers is one of the characteristics of options. For investors who buy a cross portfolio as a pure option buyer, time attenuation is naturally unfavorable to the strategy.

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Second, [Case description]

The Federal Reserve will announce its interest rate decision on March 22, and markets are expected to fluctuate significantly on the day.
A familiar benchmark called a TUTU stock (not a real stock, used only as a case study), also moves with the big plate, but you don't know if it rises or falls.

It is now March 10, and the current share price of TUTU Company is $52.
Build a Long Straddle strategy for significant volatility that may occur after half a month.

1. Position opening operation:

①Buy 1 Call

②Buy 1 Put:

One by one, the net option amount for the Long Straddle strategy = Net Single Option Monity* Contract Multiplier* Number of Contracts =-$550.

2. Strategic Analysis:

This is a total profit and loss analysis chart for the strategy for your intuitive reference.
It can be seen from the picture that the maximum profit is unlimited, and the maximum loss is -$550.

Next, we will divide into 3 cases and discuss profit and loss scenarios separately.
(Note: All profit and loss data below are based on theoretical maturities and do not include transaction fees. (In actual trading, both expiry options can be closed mid-way, and actual profit and loss will vary depending on your trading behavior.)

3. Risk Tips:

① The price fluctuation of the standard is not large enough
The strategy theoretically belongs to a multi-volatility strategy, and if the price of the benchmark asset does not change much on the maturity date, it is possible to lose all the option money.

The TUTU share price = $46.5 or the TUTU share price = $57.5 to achieve a profit and loss balance, indicating that the share price will fluctuate at least 10.57%. At maturity, TUTU shares need to fluctuate more than 10.57% to make a profit or a loss.

② Loss of time value
As an option buyer, you are always faced with a loss of time value, and the strategy is still unprofitable if the price volatility of the mark does not decrease with the time value.

In this case, the value of options near maturity is rapidly depreciated. Even if TUTU stock price fluctuation > 10.57% achieves a micro-gain, once the market reverses, the option value will quickly evaporate, eventually leading to losses.

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