A long straddle bets on a strong move without picking a direction. You buy a call and a put at the same strike and expiration. If the underlying spike…
Profits from a strong move in either direction.
Curve at expiration · dashed line = breakeven · gold ticks = strikes
A long straddle bets on a strong move without picking a direction. You buy a call and a put at the same strike and expiration. If the underlying spikes or crashes it profits; if it stalls you lose both premiums.
Use it ahead of events that can move price sharply — earnings, rate decisions, news — when you expect volatility but not a direction. Profit is unlimited on the upside and very large on the downside.
With the example values already loaded in the calculator above, this strategy returns:
The numbers above come from the same engine as the calculator — change the fields to see your own scenario.
The max loss is the sum of premiums and happens if the underlying closes at the strike. There are two breakevens (K ± total premium); the underlying must clear one just to break even.
You buy two options at once, and ahead of events implied volatility (and premium) rises. If the event disappoints, the volatility drop can hurt even with some move.
The straddle uses the same strike, costs more and needs less movement. The strangle uses different strikes, is cheaper and needs a bigger move.