Long Straddle
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Direction
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Neutral
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Strategy Type
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Volatility
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Legs
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Buy ATM Call
Buy ATM Put
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Max Reward
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Uncapped
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Max Risk
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Premium Paid
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Time Horizon
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Short to Medium
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Risk Profile
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Medium
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Payoff Diagram
Description
The long straddle, also known as buy straddle or simply "straddle” is a neutral strategy in options trading that involve the simultaneously buying of a put and a call of the same underlying stock, striking price and expiration date.
Steps Involved
Suppose ABC stock is trading at $40 in June. An options trader enters a long straddle by buying a JUL 35 put for $200 and a JUL 35 call for $200. The net debit taken to enter the trade is $400, which is also his maximum possible loss.
Rational
Long straddle options are unlimited profit, limited risk options trading strategies that are used when the options trader thinks that the underlying securities will experience significant volatility in the near term.