Glossary
Straddle
An options position that buys (or sells) a call and a put with the same strike and expiration, a bet on how much a stock moves rather than which way.
On this page
A straddle combines a call and a put on the same stock, with the same strike price and the same expiration. A long straddle buys both and profits if the stock moves far enough in either direction. A short straddle sells both and profits if the stock stays close to the strike. Either way, the trade is about the size of the move, not its direction, which makes it a direct position on volatility.
How it works
What to watch for
Option prices already contain the market's expectation of a move. Before scheduled events such as earnings, implied volatility is often high, so a straddle can lose money even when the stock moves, if the move is smaller than the premium implied. After the event, implied volatility often drops sharply, cutting the value of both options at once. Time decay (theta) works against the buyer every day.
The short straddle reverses all of this: it collects the premium but carries unlimited risk on the call side and large risk on the put side, which is why brokers restrict it to accounts with high options approval levels.