Strategy guide
Long Straddle Strategy
A long straddle buys an at-the-money call and put with the same strike and expiration.
Strategy summary
- Market outlook
- volatility
- Risk type
- defined
- Capital requirement
- Call + put premium × 100
- Maximum profit
- Unbounded upside; limited only by the downside to a zero-price move
- Maximum loss
- Both premiums, if price finishes at the strike
- Theta / vega
- negative / positive
- Assignment risk
- low
- Typical use
- Event volatility when the direction is unknown
Payoff at expiration
- Max profitUnbounded
- Max loss-$700.00
- Breakevens$93.00, $107.00
How Straddle works
It profits from a large move in either direction, but pays two premiums and needs the move to exceed them.
Exact option legs
Buy same-strike call + put
- BUY 1 × $100.00 call expiring 2026-01-16 at $3.60
- BUY 1 × $100.00 put expiring 2026-01-16 at $3.40
Payoff, breakeven and risk
At expiration the position is worth the intrinsic value of each leg. The maximum profit is unbounded in theory, the maximum loss is -$700.00, and the position breaks even at $93.00 and $107.00.
Worked example
With the underlying at $100.00:
- The straddle costs 7.00 and breaks even at 93.00 and 107.00.
- Maximum loss is the 7.00 premium if the stock pins the strike.
- Profit grows the further the stock finishes from the strike.
Strike selection
Use the at-the-money strike so the position is balanced and breaks even symmetrically.
Expiration selection
Longer expirations cost more but reduce the impact of time decay on the total premium.
Effect of time decay
This structure is negative on theta: net time decay works against it.
Effect of implied volatility
It is positive on vega: rising implied volatility helps.
Effect of stock movement
The position suits a volatility view, and it is tested most when the underlying moves outside the modelled strikes.
Assignment considerations
Assignment risk is low. Short legs can be assigned, especially when they are in the money or before a dividend; long legs have no obligation but can be exercised.
When it works poorly
- Quiet markets where the stock pins the strike.
- A fall in implied volatility after purchase.
- Very short expirations.
Common mistakes
- Buying a straddle after implied volatility has already spiked.
- Ignoring the double time decay.
- Assuming any move is enough to profit.
Tax caveat
Option outcomes can receive different tax treatment from share trades, and assignment changes the holding period and cost basis. This is general information, not tax advice; confirm your situation with a qualified professional.
FAQ
- Is a straddle bullish or bearish?
- Neither: it profits from movement in either direction.
- Why two breakevens?
- The premium must be exceeded on either side before the position profits.
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