Long Straddle
A long straddle buys both an at-the-money call and an at-the-money put at the same strike and expiry — a bet on a large move in either direction, regardless of which way.
- Max profit
- Unbounded
- Max loss
- -1000
- Breakeven(s)
- 90.0, 110.0
When to use
Use before binary events (earnings, FDA decisions, macro announcements) when you expect a large move but cannot reliably predict direction. Profitable when the realized move exceeds the total premium paid.
Risk profile
Maximum loss is the total premium paid for both options, occurring if the underlying finishes exactly at the strike. Profit is theoretically unlimited to the upside and substantial to the downside (bounded by the stock going to zero).
FAQ
What does a long straddle need to be profitable?
The underlying must move enough in either direction to exceed the total debit paid. If you paid $8 combined for ATM options at a $100 strike, the stock must close above $108 or below $92 at expiration.
Why do straddles often lose money even around big events?
Implied volatility typically collapses after a known event (the "IV crush"), deflating both legs immediately after the announcement. The actual move must be larger than what the market had already priced in.
What is the difference between a straddle and a strangle?
A straddle uses the same strike for both the call and put (usually at-the-money), making it more expensive but with a tighter profit zone. A strangle uses out-of-the-money strikes on both sides, costing less but requiring a larger move to profit.