Long Straddle

A put and a call bought at the same strike: the debit is the most that can be lost, and the position gains on a large move in either direction.

Also called Straddle, Bought straddle

Outlook

Volatility

Family

Directional

Level

Intermediate

Legs

2 legs

Expirations

1 expiration

Opens for

Debit

Maximum profit

Unlimited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
A	Long	Put 100	1	At the money
A	Long	Call 100	1	At the money

What it is

A call and a put bought at the same strike A, in the same expiration. One of them will finish worthless; the other has to be worth more than both cost together before the position is level.

It is the plainest expression of a view about size of move rather than direction. The fact box calls the outlook Volatility for that reason: the position does not care which way the underlying goes, only how far.

The payoff

At expiration

A V shape with its point at the strike: the loss is the full debit at A and the position gains in both directions away from it.

A V with its point at A:

• At A — both expire worthless and the entire debit is lost. This is the worst case, and it happens at exactly one price.
• Away from A in either direction — one leg is in the money and gains dollar for dollar with the move.

There are two break-evens: A plus the debit and A minus the debit. The distance between them is twice the debit, and it is the range the underlying has to leave before the position makes anything.

How it behaves before expiration

Today, before expiration

Today's value is a smooth curve well above the V, with a rounded bottom at the strike rather than a sharp point.

The curve sits well above the V and its bottom is rounded. Before expiry the position never loses the whole debit, because both options still carry time value even at A.

The two lines converge as expiry approaches, and that convergence is the cost of holding. A straddle that is right about the size of the move but early can still lose: the move has to arrive faster than the time value drains.

The Greeks

Delta is close to zero at A — the call’s positive delta and the put’s negative delta cancel — and grows in whichever direction the price moves.

Gamma is positive and at its largest of any structure in this encyclopaedia, concentrated at A. That is the mechanism the position runs on: delta builds automatically in the direction of the move.

Theta is negative and largest at A. Two long options decay together, and neither is offset by anything sold.

Vega is positive and large. A rise in implied volatility lifts both legs at once.

Where it lives in the volatility environment

Practitioners describe a long straddle as buying implied volatility and paying for it in theta. The position gains if realised volatility exceeds what was implied when it was opened, and loses if the underlying stays inside the range the premium paid for — which is why the break-evens, not the strike, are the numbers usually quoted.

An event with a known date is the common context, and the same event is why implied volatility is often elevated beforehand: the move has to beat the price already paid for it.

What can go wrong

• Being right too early. The move arrives after expiry and the position expires at its worst point.
• The move is real but too small. Anything inside the break-evens loses, however dramatic it felt.
• Implied volatility falls after the event. A result that resolves uncertainty can drop implied volatility enough to lose money on a move in the right direction — the position is long vega and the event was what made vega expensive.
• Both legs must be closed. Selling only the winner leaves a single long option, a different position entirely.
• Two premiums, two spreads. The structure is opened and closed across four bid-ask crossings, which matters most on the strikes with the widest markets.

Building it in Option Panel

Open Build Strategy and pick Long Straddle. Both legs take the same strike, so the builder offers one strike selection and applies it to the call and the put — by delta, by percentage from the money, or as an exact strike.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Long Strangle — the same view with the strikes apart: cheaper, and it needs a larger move.
• Short Straddle — the other side of this position, with the risk profile inverted.
• Long Guts — the same shape built from two in-the-money options instead.