What is a straddle?
A long straddle is a call and a put at the same strike, usually the one nearest the current price, in the same expiration. You pay for both.
Direction does not matter. Size does. The stock has to travel further than the combined premium before the position is worth more than it cost.
When traders use it
Traders buy straddles ahead of an event that should produce a move without a predictable sign.
- Earnings, a court ruling, a trial result, a policy decision.
- Implied volatility looks cheap relative to the move you expect.
- You have a view on magnitude but none on direction.
The P/L shape
The payoff is a V. The bottom sits at the strike, where both options expire worthless.
Worked example. XYZ trades at $100. You buy the $100 call for $4.00 and the $100 put for $3.80, a debit of $7.80 or $780.
- Max loss
- $780 — the debit, if XYZ closes exactly at $100
- Breakevens
- $92.20 and $107.80 — the strike less and plus the debit
- Max profit
- Open-ended above $107.80; up to $9,220 below
A 7.8% move is the price of admission. This is why a straddle can lose after an event even when the stock moves in your favour: it moved, but not enough.
Greeks and time decay
Delta starts near zero and grows in whichever direction the stock travels. Gamma is high, which is the point — the position gets longer as it rises and shorter as it falls.
Theta is the enemy and it is steep, because you are long two at-the-money options. Vega is strongly positive, so a drop in implied volatility after an event can wipe out the position even on a decent move.
Build it in DeltaForm
- Open the builder and choose the symbol and expiration.
- Add a long call at the strike nearest the current price.
- Add a long put at the same strike and expiration.
- Read both breakevens off the payoff curve.
- Lower implied volatility in the scenario controls to see the post-event crush.
Frequently asked questions
Why did my straddle lose money after a big move?
Implied volatility usually collapses once the event passes. That drop cuts the value of both legs at once. If the move was smaller than what the premium priced in, the position still loses.
Straddle or strangle?
A straddle costs more and needs a smaller move. A strangle costs less and needs a bigger one. Model both on the same expiration and compare the breakevens.
Can I sell a straddle instead?
Yes, and the payoff inverts: you collect the premium and profit if the stock stays near the strike. The risk is then effectively open-ended. Model it with negative quantities before you go near it.