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Glossary

Straddle

A straddle is an options strategy that pairs a call and a put with the same strike price and expiration date, seeking to profit from a large price move in either direction.

What Is a Straddle?

A straddle is an options position made up of one call option and one put option on the same underlying asset, with the same strike price and expiration date. The strategy does not depend on which way the price moves. It depends on whether the price moves far enough, in either direction, to cover the cost of the position.

There are two main versions. A long straddle means buying both options and paying a premium for each. The buyer hopes for a sharp move up or down before expiration. A short straddle means selling both options and collecting the premiums. The seller benefits if the stock stays close to the strike price.

How It Works

For a long straddle, the total premium paid sets the break-even points. The stock must rise above the strike by more than the total premium, or fall below the strike by the same amount, for the trade to be profitable at expiration:

Upper break-even = Strike price + Total premium Lower break-even = Strike price - Total premium

The maximum loss is the premium paid, which occurs if the stock finishes exactly at the strike. Gains on the upside have no fixed limit, while gains on the downside are capped because a stock cannot fall below zero.

Example

Consider a hypothetical stock trading at 50 dollars. A trader buys a 50-dollar call and a 50-dollar put for a combined premium of 4 dollars per share. The break-even points are 46 and 54.

If the stock rises to 58 at expiration, the call is worth 8 dollars and the put expires worthless. After subtracting the 4-dollar premium, the trade earns 4 dollars per share. If the stock stays near 50, both options lose most of their value, and the position can lose the full 4 dollars paid.

Why It Matters and Risks

Straddles are closely tied to implied volatility, which reflects how much the market expects a price to move. Options are often priced higher before events such as earnings announcements, so buying a straddle then means paying a larger premium. The stock must move more than the market already expected. Long straddles also lose value over time through time decay if the price stays flat.

Short straddles carry a different risk profile. The seller keeps the premium if the stock stays calm, but losses can be large, and on the upside they have no fixed limit. Short straddles generally require margin approval from a brokerage and carry significant risk.

Updated October 23, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Call Option

A call option is a contract that gives its buyer the right, but not the obligation, to buy a specified quantity of an underlying asset at a set price before or on a set expiration date.

Put Option

A put option is a contract that gives the buyer the right, but not the obligation, to sell a specified amount of an underlying asset at a set price before or on a set expiration date.

Strike Price

The strike price is the fixed price at which the holder of an option can buy or sell the underlying asset, such as a stock, when the option is exercised.

Premium

A premium is an amount paid above a base value, such as the regular payment for insurance coverage, the price of an option contract, or a price above a bond's par value.

Implied Volatility (IV)

Implied volatility is the level of future price movement that the market expects for an asset, inferred backward from the current market price of its options.

Time Decay

Time decay is the gradual loss of an option's time-based value as its expiration date gets closer, all else being equal, so the contract becomes less valuable over time.

Strangle

A strangle is an options strategy that combines buying or selling one out-of-the-money call and one out-of-the-money put on the same underlying asset, with the same expiration date.