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

    Profit On Any Price Change With Long Straddles

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

    4 Options Strategies To Know

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

    How to use Straddle Strategies

    Discover how this sophisticated trading technique can unlock significant gains while reducing your losses.
  4. 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.
  5. Personal Finance

    Tips For Series 7 Options Questions

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

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  7. Investing

    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.
  8. Trading

    Get A Strong Hold On Profit With Strangles

    Forget straddles. These strangles are both liberating and legal in the investing world.
  9. Trading

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  10. Trading

    How To Use FX Options In Forex Trading

    Currency options are another versatile tool for forex traders. Find out how to use them.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center