Straddles
What It Is
A straddle is an options strategy that involves buying a call and a put at the same strike price and expiration.
Why It Matters
It profits from large price movements in either direction.
How It Works
- Buy a call at strike X
- Buy a put at strike X
- Total cost is the combined premium
- Profit if price moves significantly up or down
Key Components
- Volatility exposure
- Unlimited upside
- High premium cost
- Direction‑agnostic
Example
Buying a $50 call and $50 put ahead of earnings allows profit if the stock makes a large move.
Key Takeaways
- Straddles bet on volatility.
- Loss is limited to premiums paid.
- Best for major events or uncertainty.