Long Straddle
An options strategy that buys both a call and a put at the same strike and expiration to profit from a large price move in either direction.
What is Long Straddle?
A long straddle is a non-directional options strategy constructed by simultaneously buying an at-the-money call and an at-the-money put on the same underlying asset with the same strike price and expiration date. The strategy profits when the underlying makes a large move in either direction — up or down — exceeding the total premium paid (the breakeven points are the strike plus and minus the net premium). Long straddles are typically purchased before anticipated high-impact events such as earnings announcements, clinical trial results, or major economic releases where the direction is uncertain but a significant move is expected. The primary risk is a loss of the entire premium if the underlying remains near the strike price at expiration.
Example
Before a pharmaceutical company's FDA approval decision, a trader buys a straddle: the $50 call for $3.50 and the $50 put for $3.00, paying a total of $6.50. Breakeven is $56.50 to the upside and $43.50 to the downside. If the drug is approved and the stock jumps to $65, the call gains $8.50 net of premium. If rejected and the stock falls to $35, the put gains $8.50 net. If the stock stays near $50, the full $6.50 premium is lost.