Straddle

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DEFINITION of 'Straddle'

An options strategy with which the investor holds a position in both a call and put with the same strike price and expiration date.

Straddle

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. The stock price must move significantly if the investor is to make a profit. As shown in the diagram above, should only a small movement in price occur in either direction, the investor will experience a loss. As a result, a straddle is extremely risky to perform. Additionally, on stocks that are expected to jump, the market tends to price options at a higher premium, which ultimately reduces the expected payoff should the stock move significantly.

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RELATED FAQS
  1. What option strategies can I use to earn additional income when investing in the ...

    Investors can use the covered call strategy or the call-put straddle strategy to earn additional income while investing in ... Read Full Answer >>
  2. When is an options straddle deep in the money?

    A straddle is an options position where an investor or trader has a position in both a call option and a put option with ... Read Full Answer >>
  3. What kinds of financial instruments can I use a straddle for?

    Options are contracts that give the buyer a right to buy or sell a security at a certain price. They can be traded on futures ... Read Full Answer >>
  4. 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 >>
  5. What does it mean to say that a straddle is "delta neutral?"

    The option Greek delta measures how much an option moves in relation to the changes in an underlying stock price. It's the ... Read Full Answer >>
  6. 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 >>
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