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 Options Strategies To Know

    Here is a quick introduction to four options strategies that traders should know.
  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 Are Futures & Options Taxed?

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

    How To Use Options To Make Earnings Predictions

    Use this simple three-step process to make your own earnings predictions using options data.
  10. 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.
Trading Center