Long Straddle Strategy
Buy an ATM call and put. Profit from large moves in either direction.
What is a Long Straddle?
A Long Straddle involves buying both a call and a put at the same strike (ATM) and expiration. Profit if the stock makes a large move in either direction. Max loss is total premium paid if stock stays flat. Pure volatility play.
When to Use a Long Straddle
Use before events that could cause big moves: earnings, FDA decisions, Fed announcements. Best when IV is LOW (buying cheap vol). Avoid when IV is already high (you'll pay too much).
Key Formulas
- Max Profit
- Unlimited (call side) or substantial (put side to $0)
- Max Loss
- Total premium paid × 100
- Breakeven
- Strike + Total premium (upside) / Strike - Total premium (downside)
Example Trade
Buy AAPL $200 Call for $4, $200 Put for $4. Total cost $800. Profit if AAPL moves outside $192-$208.
Common Mistakes to Avoid
- Buying before earnings when IV is already elevated (IV crush)
- Needing a big move to overcome double premium
- Not exiting one side when one profits
- Choosing illiquid strikes
Related Strategies
Frequently Asked Questions
What is a Long Straddle?
A Long Straddle involves buying both a call and a put at the same strike (ATM) and expiration. Profit if the stock makes a large move in either direction. Max loss is total premium paid if stock stays flat. Pure volatility play.
When should I use a Long Straddle?
Use before events that could cause big moves: earnings, FDA decisions, Fed announcements. Best when IV is LOW (buying cheap vol). Avoid when IV is already high (you'll pay too much).
What is the maximum profit and loss for a Long Straddle?
Max profit: Unlimited (call side) or substantial (put side to $0). Max loss: Total premium paid × 100.
What is the breakeven price for a Long Straddle?
Breakeven: Strike + Total premium (upside) / Strike - Total premium (downside). Example trade: Buy AAPL $200 Call for $4, $200 Put for $4. Total cost $800. Profit if AAPL moves outside $192-$208.
What are common mistakes when trading a Long Straddle?
Common mistakes include: Buying before earnings when IV is already elevated (IV crush); Needing a big move to overcome double premium; Not exiting one side when one profits; Choosing illiquid strikes.
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