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Straddle

Options

A straddle is buying a call and a put on the same stock with the same strike and the same expiration.

The outcome depends on the size of the move, not its direction: it profits if the stock moves in either direction by more than the total premium paid. If the stock stays put, both options lose time value, and in the worst case the entire premium is lost.

Example

With the stock at $100, you buy the $100 call for $4 and the $100 put for $4, a total cost of $8 per share. To profit at expiration, the stock needs to be below $92 or above $108.

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More in the Guide

Options: Calls, Puts and the Anatomy of a PremiumA way to trade direction without owning the stock — and why the clock inside the premium always runs against the buyer.