Long Straddle
A long straddle buys a call and a put at the same strike and expiration. You don't care which way the stock moves — only that it moves far enough to outrun the combined premium. It's the purest long-volatility trade.
When it makes sense
- You expect a big move but have no directional conviction — earnings, FDA decisions, product launches
- Implied volatility is near the bottom of its range, making both options cheap
- The stock has been coiling in a tight range and a breakout looks due
How it works
Buy the at-the-money call and put in the same expiration. Your total debit is the max loss. Breakevens sit at the strike plus and minus the total premium — the stock must clear one of them by expiration.
Risk & reward
Maximum loss: the full debit, realized if the stock pins the strike. Maximum profit: unlimited upside, substantial downside. Double premium means double time decay — straddles bleed fast when nothing happens, and an IV crush after an event can hurt even when the stock moves.
Worked example
Stock at $100 before earnings. Buy the 20-day $100 call for $3 and $100 put for $2.80 ($580 total). Stock at $112 after the report: the call alone is worth $12 — a $620 profit. Stock at $101: both options decay and you lose most of the $580.
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