Definition
A straddle involves simultaneously buying a call and put with the same strike price and expiration. It profits from large price movements in either direction. Traders use straddles when expecting high volatility but uncertain about direction, such as before earnings announcements.
Formula
Example
Buy a $100 call and $100 put for $4 each ($8 total). Profit if stock moves above $108 or below $92 by expiration.
FAQ
What is Straddle?
An options strategy buying both a call and put at the same strike price.
How do you calculate Straddle?
A common formula for Straddle is: Breakeven = Strike ± Total Premium Paid
Why is Straddle important?
Straddle helps investors evaluate options and make more informed decisions.
Related Terms
Strangle
An options strategy buying OTM calls and puts at different strike prices.
Volatility
A measure of how much a stock's price fluctuates over time.
Call Option
A contract giving the holder the right to buy an asset at a specified price.
Put Option
A contract giving the holder the right to sell an asset at a specified price.