Am a beginner in option trading. Recently started learning option strategies. The long straddle looked particularly appealing. However to make a profit the underlying needs to move, lets say around 2%. Is there any technique by which we can reduce this gap down to 0.5% range?
A long straddle gains value if implied volatility increases and/or the underlying moves away from the strike price. It loses value due to double sided time decay. Those are its dynamics.
You can reduce the 2% threshold by:
- using lower IV options (less chance of a big move)
- buying nearer term expiries (disadvantage of higher rate of theta decay)
- utilizing defined risk strategies that have a cap (butterfly, iron condor)