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

    Profit From Earnings Surprises With Straddles And Strangles

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

    4 Options Strategies To Know

    Here is a quick introduction to four options strategies that traders should know.
  5. Trading

    How to use Straddle Strategies

    Discover how this sophisticated trading technique can unlock significant gains while reducing your losses.
  6. Trading

    How To Profit From Volatility

    We explain four key strategies to profit fom volatility in markets.
  7. 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.
  8. Trading

    How To Use Options To Make Earnings Predictions

    Use this simple three-step process to make your own earnings predictions using options data.
  9. 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.
  10. Personal Finance

    Tips For Series 7 Options Questions

    We'll show you how to ace the largest and most difficult section of this exam.
Frequently Asked Questions
  1. I'm about to retire. If I pay off my mortgage with after-tax money I have saved, I can save 6.5%. Should I do this?

    Only you and your financial advisor, family, accountant, etc. can answer the "should I?" question because there are many ...
  2. My wife and I both converted our Traditional IRAs to Roth IRAs over a decade ago and have invested the maximum allowed each year since. We're buying our first home soon. Do we both qualify for one-time, tax-free, $10,000 distributions?

    You and your spouse each qualify for a penalty-free distribution of up to $10,000 for the purchase, acquisition or construction ...
  3. Is a Thrift Savings Plan (TSP) a qualified retirement plan?

    Take advantage of the government's retirement plan for employees with the Thrift Savings Plan. As with a 401(k), contributions ...
  4. Who manages the assets in a Roth 401(k) account?

    Learn how to personally manage the assets in your Roth 401(k) plan and determine the best options available to help meet ...
Trading Center