Long Straddle
Buy an ATM call and an ATM put at the same strike price and expiration. You profit from a large move in either direction. The cost is high because you are buying two options.
Payoff Diagram
How to Set Up This Trade
Buy one ATM call and one ATM put at the same strike price and same expiration.
Trade Setup — 2 Legs
When to Use This Strategy
You expect a big move in the stock but are unsure of the direction. Best when implied volatility is low and expected to rise (e.g., before a binary event like earnings).
Tips from the Pros
- 1
Enter when IV is low and a catalyst is approaching — the IV expansion can boost both options.
- 2
The stock needs to move more than the total premium paid in either direction to profit.
- 3
Consider closing before the event if IV has expanded enough to generate profit, even without a price move.
Quick Reference
Max Profit
Unlimited on the upside (long call). Substantial on the downside (long put, stock can drop to zero).
Max Loss
Limited to the total premium paid for both options. Occurs if the stock stays exactly at the strike price at expiration.
Breakeven
Upper breakeven: strike + total premium paid. Lower breakeven: strike - total premium paid.
Best IV Environment
Low IV
Time Decay (Theta)
Hurts (negative theta)
Risk Level
Medium RiskLearn More
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