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Straddle

In short

Buy a call and put at the same strike — profits from big moves in either direction

You buy both a call and a put at the same strike. You profit if the stock makes a big move — up OR down. Perfect for earnings when you know something big will happen but don't know which way.

A long straddle buys a call and put with identical strike and expiration. Profits when the stock moves significantly beyond the combined premium paid. Most effective before high-volatility events. A short straddle (selling both) profits from low volatility.

Formula

Breakeven = Strike ± Total Premium Paid

Related concepts

  • Strangle — Like a straddle but both options are out-of-the-money. Cheaper to enter but the stock needs to make an even bigger move to profit. More speculative than a straddle but costs less upfront.
  • Iron Condor — An iron condor sells both a call spread and a put spread. You collect premium and profit if the stock stays within a range. Think of it as betting the stock won't make a big move. Ideal when you expect a calm, boring market.
  • Implied Volatility — Implied volatility is the market's guess about how much a stock will move. High IV means expensive options (the market expects big moves). Low IV means cheap options. Buy options when IV is low, sell when IV is high.
  • Vega — Vega measures how much an option's price changes when market expectations of volatility change. If you expect a big announcement (earnings, FDA), buy before the event — vega will boost your option's value as uncertainty rises.