Straddle: An Options Strategy That Profits from Big Price Moves in Either Direction
A straddle is an options trading strategy that involves buying or selling both a call option and a put option on the same underlying asset, with the same strike price and expiration date.
It’s designed to profit from large price movements, whether the asset goes up or down — as long as the move is significant enough to cover the cost of both options.

In simple terms, a straddle is a bet on volatility, not direction. You profit if the price moves sharply in either way.

Core Idea

The goal of a straddle is to take advantage of market uncertainty.
When a trader expects a big move in a stock or currency — for example, after an earnings announcement or central bank decision — but isn’t sure of the direction, they can use a straddle.

There are two main types:

Long Straddle: You buy both options — expecting a big price move (high volatility).

Short Straddle: You sell both options — expecting little or no price movement (low volatility).

In Simple Terms

A straddle lets you profit from movement itself, not from guessing whether prices go up or down.
If the market stays quiet, you lose; if it moves sharply, you win.

Example: Long Straddle

A trader buys:

1 Call Option with a strike price of $100 (cost: $4)

1 Put Option with the same strike price of $100 (cost: $4)

Total cost (premium paid): $8

Outcome:

If the stock rises to $115 → the call gains $15, the put expires worthless → net profit = $15 – $8 = $7 gain.

If the stock falls to $85 → the put gains $15, the call expires worthless → net profit = $15 – $8 = $7 gain.

If the stock stays near $100 → both options expire worthless → $8 loss (the total premium paid).

This strategy works only if the stock moves significantly in either direction.

Example: Short Straddle

A trader sells:

1 Call Option and 1 Put Option with the same strike price and expiration.

They collect the premiums upfront but face unlimited risk if the price moves too far in either direction.
This strategy is for experienced traders who expect low volatility and want to earn premium income.

Real-Life Application

Traders often use straddles:

Around earnings reports, economic announcements, or interest rate decisions — when volatility is expected.

In forex markets, ahead of policy meetings or geopolitical events.

To measure implied volatility expectations in option pricing.

Long straddles benefit from high volatility, while short straddles profit when markets remain stable.

Advantages

Profits from large moves in either direction.

No need to predict market direction.

Useful for volatility trading or hedging before major events.

Risks and Limitations

Expensive: You pay two premiums for a long straddle.

Time decay: Both options lose value as expiration approaches if prices don’t move.

Unlimited loss potential in a short straddle.

Works best in markets with high volatility or major price catalysts.

Common Misconceptions and Mistakes

“You can’t lose in a straddle.” If the price barely moves, both options expire worthless.

“It’s only for professionals.” Beginners can use it in small sizes but must understand time decay.

“It guarantees profits around events.” Volatility may be priced in, limiting potential gain.

“A straddle is the same as a strangle.” A strangle uses different strike prices; a straddle uses the same strike.

Related Queries Traders Often Search For

What is the difference between a long straddle and a short straddle?

How does a straddle profit from volatility?

What are the risks of a straddle strategy?

How is a straddle different from a strangle?

When should traders use a straddle?

Summary

A straddle is an options strategy that involves buying or selling a call and a put option with the same strike price and expiration date.
It allows traders to profit from big market moves in either direction — making it a popular choice around high-impact events.
While a long straddle benefits from volatility, a short straddle profits from stability but carries much higher risk.