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Volatile market trading strategies are appropriate when the investor believes the market will move but does not have an opinion on the direction of movement of the market. As long as there is significant movement upwards or downwards, these strategies offer profit opportunities. An investor need not be bullish or bearish. He must simply be of the opinion that the market is volatile. This market outlook is also referred to as "neutral volatility."

A straddle is the simultaneous purchase (or sale) of two identical options, one a call and the other a put.

	Profit	Limited to the Net Premium received
	Loss	Unlimited
	Break Even	Expecting a tight sideways movement
	Use	Volatility decrease helps the position
	Formation	Writing Call (A)
		Writing Put (A)

Short Call Same Exercise Price		Short Put Same Exercise Price
Position	Buyer	Position	Writer
Spot Price	2080	Spot Price	2080
Strike Price	2070	Strike Price	2070
Premium Received	Rs. 42	Premium Received	Rs. 17
Break-Even	2070 + 42 = 2112	Break-Even	2070 – 17 = 2053

Pay-off Structure of Short Straddle :

Possible NIFTY Index	Net Premium Paid	Profit/Loss on Long Put (B)	Profit/Loss on Short Put (A)	Net Profit/Loss	Remarks
2030	59	42	-23	19	In-The-Money
2040	59	42	-13	29	In-The-Money
2050	59	42	-3	39	In-The-Money
2060	59	42	7	49	In-The-Money
2070	59	42	17	59	In-The-Money
2080	59	32	17	49	In-The-Money
2090	59	22	17	39	In-The-Money
2100	59	12	17	29	In-The-Money
2110	59	2	17	19	In-The-Money
2120	59	-8	17	9	In-The-Money
2130	59	-18	17	-1	Out-The-Money
2140	59	-28	17	-11	Out-The-Money

	Pay-off Graph of Short Straddle :

Interpretation:

	An investor, viewing a market as stable, should: write option straddles. A "straddle sale" allows the investor to profit from writing calls and puts in a stable market environment. Here the investor is taking the short position on Call with strike price of 2070 and Short put with same strike price 2070.

	The investor's profit potential is limited. Here the investor receiving the premium for both options. He receives the Rs. 42 for Short Call and receives the Rs. 17 for Short put. So the total premium received is Rs. 59. and it the Maximum profit for the investor.

	The investor's potential loss is unlimited. If the market rising above the 2120 than the investor is in loss position. And if the market falls below the 2010 than also he is in loss. So it market is in between that point earns profit.

	The breakeven points occur when the market price at expiration equals the exercise price plus the premium and minus the premium. The investor is short two positions and thus, two breakeven points; One for the call is 2070 + 42 = 2112(common exercise price plus the premiums paid), and one for the put is 2070 – 17 = 2053(common exercise price minus the premiums paid).

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