What is a 'Straddle'
A straddle is an options strategy in which the investor holds a position in both a call and put with the same strike price and expiration date, paying both premiums. This strategy allows the investor to make a profit regardless of whether the price of the security goes up or down, assuming the stock price changes somewhat significantly.
BREAKING DOWN 'Straddle'
Straddles are a good strategy to pursue if an investor believes that a stock's price will move significantly but is unsure as to which direction. Thus, this is a neutral strategy, as the investor is indifferent whether the stock goes up or down, as long as the price moves enough for the strategy to earn a profit.Straddle Mechanics and Characteristics
The key to creating a long straddle position is to purchase one call option and one put option. Both options must have the same strike price and expiration date. If nonmatching strike prices are purchased, the position is then considered to be a strangle, not a straddle.
Long straddle positions have unlimited profit and limited risk. If the price of the underlying asset continues to increase, the potential profit is unlimited. If the price of the underlying asset goes to zero, the profit would be the strike price less the premiums paid for the options. In either case, the maximum risk is the total cost to enter the position, which is the price of the call option plus the price of the put option.
The profit when the price of the underlying asset is increasing is given by:
Profit(up) = Price of the underlying asset  the strike price of the call option  net premium paid
The profit when the price of the underlying asset is decreasing is given by:
Profit(down) = Strike price of put option  price of the underlying asset  net premium paid
The maximum loss is the total net premium paid plus any trade commissions. This loss occurs when the price of the underlying asset equals the strike price of the options at expiration.
There are two breakeven points in a straddle position. The first, known as the upper breakeven point, is equal to strike price of the call option plus the net premium paid. The second, the lower breakeven point, is equal to the strike price of the put option less the premium paid.
Straddle Example
A stock is priced at $50 per share. A call option with a strike price of $50 is priced at $3, and a put option with the same strike price is also priced at $3. An investor enters into a straddle by purchasing one of each option.
The position will profit at expiration if the stock is priced above $56 or below $44. The maximum loss of $6 occurs if the stock remains priced at $50 at expiration. For example, if the stock is priced at $65, the position would profit:
Profit = $65  $50  $6 = $9

Iron Butterfly
An options strategy that is created with four options at three ... 
Short Straddle
An options strategy carried out by holding a short position in ... 
Covered Straddle
An option strategy that involves writing the same number of puts ... 
Bear Call Spread
A type of options strategy used when a decline in the price of ... 
Long Straddle
A strategy of trading options whereby the trader will purchase ... 
Strike Price
The price at which a specific derivative contract can be exercised. ...

Trading
Profit On Any Price Change With Long Straddles
In this strategy, traders cash in when the underlying security rises  and when it falls. 
Trading
4 Options Strategies To Know
Here is a quick introduction to four options strategies that traders should know. 
Trading
Tips For Series 7 Options Questions
We'll show you how to ace the largest and most difficult section of this exam. 
Trading
Profiting From Stock Declines: Bear Put Spread Vs. Long Put
If you're bearish, you should compare the risk/reward characteristics of these two strategies. 
Investing
Income Strategies for Your Portfolio to Make Money Regularly
Discover the optionwriting strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums. 
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. 
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. 
Trading
What's the Strike Price?
The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset. In a call option, the strike price is the price at which the ... 
Trading
Three Ways to Profit Using Put Options
A brief overview of how to profit from using put options in your portfolio. 
Trading
How To Profit From Volatility
We explain four key strategies to profit fom volatility in markets.

What options strategies are best suited for investing in the financial services sector?
Learn the options strategies top traders use to take advantage of the volatility in the financial services sector and the ... Read Answer >> 
What options strategies are best suited for investing in the aerospace sector?
Learn how investors profit from volatility in the aerospace sector by employing options strategies, which include the long ... Read Answer >> 
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 Answer >> 
What option strategies can I use to earn additional income when investing in the ...
Learn about a couple of good options strategies that traders can use to enhance investing profitability when investing in ... Read Answer >> 
How are call options priced?
Learn how aspects of an underlying security such as stock price and potential for fluctuations in that price, affect the ... Read Answer >> 
How does the term 'in the money' describe the moneyness of an option?
Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>