Long Straddle
Volatility StrategyUse Zuviz's free options visualizer to build this strategy instantly. Profit from big moves in either direction. Buy both an at-the-money call AND put at the same strike. Perfect for earnings plays or expected volatility events.
⚡ Key Takeaways
- Market Outlook: Expect large move in either direction (high volatility)
- Max Profit: Unlimited upside, strike - premium downside
- Max Loss: Total premium paid (both call + put = $8.00 in example)
- Breakeven Points: Strike ± total premium (e.g., $92 and $108)
- Best for: Earnings plays, FDA decisions, binary events with expected volatility
- Greeks Impact: Negative Theta (double time decay), positive Vega (benefits from IV rise)
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📊 Payoff Diagram
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🏗️ Strategy Structure
A Long Straddle buys both a call and put at the same strike (typically ATM).
| Leg | Action | Type | Strike | Premium |
|---|---|---|---|---|
| 1 | Buy | Call | $100 (ATM) | $4.00 |
| 2 | Buy | Put | $100 (ATM) | $4.00 |
Total Cost: $4.00 + $4.00 = $8.00 per share ($800 per contract)
🧮 Key Calculations
Max Profit
Unlimited on the upside. On the downside, max profit is Strike - Premium (stock can go to $0).
Upside: Unlimited
Downside: $100 - $8.00 = $92.00/share
Max Loss
Occurs if stock stays exactly at the strike at expiration.
Max Loss = Total Premium = $8.00/share ($800/contract)
Breakevens
Upper Breakeven = Strike + Total Premium = $100 + $8.00 = $108.00Lower Breakeven = Strike - Total Premium = $100 - $8.00 = $92.00
Stock needs to move more than 8% in either direction to profit!
🎯 When to Use This Strategy
- Before earnings: Expecting a big move but unsure of direction
- FDA decisions: Binary events with major price impact
- Election results: Political uncertainty affecting specific stocks
- Merger announcements: Takeover speculation
- Low IV environment: When options are cheap relative to expected move
📈 Greeks Impact
Delta (Δ)
Near Zero - You want the stock to stay still.
Theta (Θ)
Positive - Time decay is your best friend here.
Vega (ν)
Negative - You want volatility to decrease (IV Crush).
⚖️ Pros & Cons
Pros
- Profit from moves in either direction
- Unlimited upside potential
- No directional bias needed
- Benefits from volatility expansion
- Simple to understand
Cons
- Expensive (buying 2 ATM options)
- Needs a large move to profit
- Time decay hurts both legs
- IV crush can destroy value
- Max loss if stock stays flat
📝 Real-World Example
Stock: NVDA trading at $500 (day before earnings)
Strategy: Long Straddle, 7 DTE
| Leg | Action | Strike | Premium (High IV) |
|---|---|---|---|
| 1 | Buy | $500 Call | $30.00 |
| 2 | Buy | $500 Put | $30.00 |
Total Cost: $60.00/share ($6,000/contract)
Upper Breakeven: $560 (+12%)
Lower Breakeven: $440 (-12%)
Expected Move (priced by market): ±11%
⚠️ In this case, the straddle requires a 12% move to profit, but the market only expects 11%. This suggests the straddle may be slightly overpriced for this earnings event.