Long Straddle

AAA

DEFINITION of 'Long Straddle'

A strategy of trading options whereby the trader will purchase a long call and a long put with the same underlying asset, expiration date and strike price. The strike price will usually be at the money or near the current market price of the underlying security.

INVESTOPEDIA EXPLAINS 'Long Straddle'

The strategy is a bet on increased volatility in the future as profits from this strategy are maximized if the underlying security moves up or down from present levels. Should the underylying security's price fail to move or move only a small amount, the options will be worthless at expiration.

RELATED TERMS
  1. Covered Straddle

    An option strategy that involves writing the same number of puts ...
  2. Short Straddle

    An options strategy carried out by holding a short position in ...
  3. Iron Butterfly

    An options strategy that is created with four options at three ...
  4. Iron Condor

    An advanced options strategy that involves buying and holding ...
  5. Strangle

    An options strategy where the investor holds a position in both ...
  6. Straddle

    An options strategy with which the investor holds a position ...
RELATED FAQS
  1. What options strategies are best suited for investing in the telecommunications sector?

    The telecommunications sector is composed of three segments, all exhibiting greater volatility than the broader market. For ... Read Full Answer >>
  2. What options strategies are commonly used for investing in the electronics sector?

    The long straddle and long strangle option strategies take advantage of the electronic sector's cyclical nature. Both strategies ... Read Full Answer >>
  3. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
  4. What options strategies are best suited for investing in the drugs sector?

    The covered call and long straddle options strategies enable investors to capitalize on the unique characteristics of the ... Read Full Answer >>
  5. What options strategies are best suited for investing in the aerospace sector?

    The best options strategies for investing in the aerospace sector exploit the sector's volatility and propensity for big ... Read Full Answer >>
  6. Under what circumstances should I pursue a straddle?

    A straddle is an option strategy composed by an investor buying, or selling, a call option and a put option with the same ... Read Full Answer >>
  7. What's the difference between a straddle and a strangle?

    Straddles and strangles are both options strategies that allow the investor to gain on significant moves either up or down ... Read Full Answer >>
Related Articles
  1. Options & Futures

    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.
  2. Professionals

    Tips For Series 7 Options Questions

    We'll show you how to ace the largest and most difficult section of this exam.
  3. Options & Futures

    Profit On Any Price Change With Long Straddles

    In this strategy, traders cash in when the underlying security rises - and when it falls.
  4. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  5. Options & Futures

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
  6. Options & Futures

    The Long Straddle And Price Consolidation

    With options, the direction of a stock's next major move becomes less important than its magnitude.
  7. Options & Futures

    Profit From Earnings Surprises With Straddles And Strangles

    These option strategies allow traders to play on earnings announcements without taking a side.
  8. Options & Futures

    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.
  9. Stock Analysis

    Southwest & Cheap Oil: The Perfect Combination?

    Discover how falling oil prices (and well-timed futures contracts) benefit Southwest Airlines.
  10. Investing Basics

    Explaining Gamma

    Gamma is a measurement of how fast the delta of an option’s price changes after a 1-point movement in the underlying security.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!