Snapshot
Legs
Buy 1 At-the-Money Call + Buy 1 At-the-Money Put
Outlook
High Volatility / Direction Agnostic
Max profit
Unlimited to the upside, Substantial to the downside
Max Loss
Net debit paid
A long straddle option strategy requires purchasing both a call option and a put option at the exact same strike price and expiration date. You pay a high initial debit to buy both contracts. Traders use this approach when they expect the underlying stock to experience massive price volatility, but do not know which direction the stock will move.
The maximum loss is capped at the total cost paid upfront to buy both options, occurring if the stock stays stuck right at the strike price through expiration. The profit potential is unlimited if the stock climbs high enough, and substantial if the stock falls sharply enough to cover the initial purchase price of both options.
Example
Stock
$100
Trade
- Buy $100 Call for $4.00
- Buy $100 Put for $4.00
→ $8.00 debit ($800)
Breakevens
$92.00 / $108.00
Outcomes
- Stock at $100: -$800 Max Loss
- Stock at $92 or $108: $0 Breakeven
- Stock far from $100: Profit (e.g., +$700 at $115 or $85)