What if you do not know which direction a stock will move in, but you have the sense it will move dramatically one way or the other? There is an options strategy for that, too. It is called a straddle.

More specifically, it is called a long straddle - buying a put and a call on the same underlying asset, exercise price and expiration date. Whether the stock moves one way or the other, the investor profits, but the stock has to move enough to pay off the premiums on both options. Essentially, the investor is betting on volatility.

Let's assume an investor buys a 1 MNO May 100 call @ 1 and 1 MNO May 100 put @ 1:


Figure 8.7: Long Straddle


If there is such a thing as a long straddle, there has to be a short straddle - selling a put and a call on the same underlying asset, exercise price and expiration date. The seller's bet is that the stock price will not be volatile:

Figure 8.8: Short Straddle


  • Combinations are essentially straddles, but the put and call have different exercise prices or expiration dates.


Other Options Strategies

Related Articles
  1. Trading

    Straddle Strategy A Simple Approach To Market Neutral

    Being both short and long has advantages. Find out how to straddle a position to your advantage.
  2. Trading

    Profit On Any Price Change With Long Straddles

    In this strategy, traders cash in when the underlying security rises - and when it falls.
  3. Trading

    The Long Straddle And Price Consolidation

    With options, the direction of a stock's next major move becomes less important than its magnitude.
  4. Trading

    Profit From Earnings Surprises With Straddles And Strangles

    These option strategies allow traders to play on earnings announcements without taking a side.
  5. Trading

    4 Popular Options Strategies for 2016

    Learn how long straddles, long strangles and vertical debit spreads can help you profit from the volatility that stock analysts expect for 2016.
  6. Trading

    How Are Futures & Options Taxed?

    We present a basic introduction to the US tax processes of futures and options.
  7. Trading

    Options Strategies That Profit From Rite Aid's Volatility

    Learn why options strategies such as the long straddle and the long strangle enable investors to make big money with Rite Aid and other volatile stocks.
  8. Trading

    Tips For Series 7 Options Questions

    We'll show you how to ace the largest and most difficult section of this exam.
  9. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  10. ETFs & Mutual Funds

    Scared By ETF Risks? Try Hegding With ETF Options

    With more ETFs to trade, the risks associated with these investments have grown. To mitigate these risks, ETF options are a hedging strategy for traders.
Trading Center