Long Straddle Strategy
Buy a call and put at the same strike to profit from large price moves in either direction.
Unlimited on upside, substantial on downside (to zero)
Total premium paid for both options
Strike - total premium AND Strike + total premium
volatile
📖 What is the Long Straddle?
A long straddle involves buying a call and put at the same strike price and expiration. You profit if the stock makes a large move in either direction, greater than the combined premium paid. It's used before events when you expect high volatility but are unsure of direction.
🔧 How to Set Up
BUY CALL @ ATM
Buy ATM call
BUY PUT @ Same ATM strike
Buy ATM put at same strike
💡 Example Trade
Underlying: NFLX @ $500
Buy 500 call and 500 put for $25 total
Unlimited above $525 or substantial below $475
$2,500 (total premium × 100)
$475 and $525
📊 Greeks Profile
Near zero initially (call delta offsets put delta).
Very positive. Benefits from large moves.
Negative. Time decay hurts both legs.
Positive. Rising IV increases value.
❓ Frequently Asked Questions
When is a long straddle profitable?
The stock must move beyond the total premium paid in either direction. If you pay $10 for the straddle at the $100 strike, you need the stock above $110 or below $90 to profit at expiration.
Long straddle vs long strangle - which should I use?
Straddles cost more but have lower breakevens. Strangles are cheaper but need larger moves. Use straddles when you expect a significant but not extreme move.
Pros & Cons
- ✓Profits from large moves in either direction
- ✓No need to predict direction correctly
- ✓Limited risk (premium paid)
- ✓Unlimited profit potential
- ✗Expensive (paying two premiums)
- ✗Needs large move to overcome cost
- ✗Time decay works against you quickly
- ✗IV crush after events can cause losses
Ideal Conditions
- →Expecting a large move but unsure of direction
- →IV is relatively low (cheap options)
- →Major catalyst approaching (earnings, FDA, etc.)
- →Historical moves exceed expected moves
💡 Pro Tips
- Buy when IV is low relative to expected move
- Calculate if the expected move exceeds breakevens
- Consider closing one leg if stock moves significantly
- Avoid holding through IV crush events if possible