Definition
A long straddle is a multi-leg options strategy built by buying a call and a put with the same strike price and the same expiration date. The trader pays two premiums and profits if the underlying moves far enough in either direction.
It is a non-directional position. The trader is not betting on which way the market goes — only that it will move significantly, and soon enough to matter.
Why it matters
How it works
Because the trader buys both a call and a put at the same strike, one leg gains value as the other loses it. If the underlying surges, the call grows while the put fades; if it plunges, the reverse happens. The position is profitable only when the winning leg gains more than the combined cost of both premiums.
The enemy of a long straddle is stillness. If the underlying stays near the strike, both options decay and the trader loses the premium. Straddles are therefore often placed ahead of known catalysts — earnings reports, regulatory decisions, major announcements — where a sharp move is likely. They also lose value if implied volatility falls after entry, since both legs become cheaper.