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 change in the underlying stock price is significant enough to move past either of the strike prices and offset the cost of the premiums.
On the chart above, the dotted lines show the implications of buying a call or put in isolation. The the solid vshaped line shows the profit/loss when buying both the call and put. As the stock price falls or rises the strategy makes money. If the stock price doesn't move much, the strategy loses money.
Breaking Down the '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. This is a neutral strategy. 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 put's 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 combined cost of the call and put option.
The profit when the price of the underlying asset is increasing is:
Profit(up) = Price of the underlying asset  the strike price of the call option  net premium paid. Since each stock option represents 100 shares, the profit is multiplied by 100 for one contract, 200 for two contracts, and so on.
The profit when the price of the underlying asset is decreasing is:
Profit(down) = Strike price of put option  price of the underlying asset  net premium paid. As with the scenario above, multiply by 100 (one contract) to get the total profit on the trade.
The maximum loss is the total net premium paid plus any trade commissions.
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 total premium cost. The second, the lower breakeven point, is equal to the strike price of the put option less the total premiums 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. If the stock moves to $65, the position would profit:
Profit = $65  $50  $6 = $9
If the trader bought and sold one contract they make $9 x 100 shares = $900. They laid out $600 for the trade [($3 x 100) + ($3 x 100)].
If the stock price is right at $50 at expiration, they lose $600. If the price is above or below $50, they will recoup some of their cost since one of the options will have some intrinsic value. They can sell the option with intrinsic value just prior to expiration to recoup some of the initial cost, which will reduce the loss.

Covered Straddle
A covered straddle is an option strategy that seeks to profit ... 
Bear Straddle
A bear straddle is a speculative options trading strategy through ... 
Put Option
A put options gives the owner the right to sell a specified amount ... 
Bull Put Spread
A bull put spread is an incomegenerating options strategy that ... 
Out Of The Money (OTM)
An out of the money option has no intrinsic value, but only possesses ... 
Christmas Tree
A Christmas tree is a complex options trading strategy achieved ...

Trading
The Long Straddle And Price Consolidation
With options, the direction of a stock's next major move becomes less important than its magnitude. 
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
How To Profit From Volatility
We explain four key strategies to profit fom volatility in markets. 
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. 
Taxes
How Are Futures & Options Taxed?
We present a basic introduction to the US tax processes of futures and options. 
Trading
Getting acquainted with options trading
Learn about trading stock options, including some basic options trading terminology. 
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. 
Investing
Why BofA May Outperform JPMorgan, Citigroup
The options market is bullish on JPMorgan and Citigroup, but is especially keen on Bank of America. 
Trading
How To Use Options To Make Earnings Predictions
Use this simple threestep process to make your own earnings predictions using options data.

How do I change my strike price once the trade has been placed already?
Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >> 
Can an Option Have a Negative Strike Price?
When it comes to exchange traded options, an option can't have a negative strike price. Read Answer >> 
How Do Speculators Profit From Options?
Options are a risky game, but you can learn speculators' tricks to use them to your advantage. Read Answer >> 
What does it mean to say that a straddle is "delta neutral?"
Learn what the option Greek delta is and what makes a deltaneutral position, and see an example illustrating a deltaneutral ... Read Answer >>