A straddle is a non-directional options strategy where a trader:
Buys a call option
Buys a put option
At the same strike price and the same expiry
This is called a long straddle, and it profits when the underlying asset makes a large move in either direction, up or down.
It does not rely on direction, only on the magnitude of the movement.
Ideal Market Scenario
Use a straddle when you expect:
High volatility but uncertain direction
An event such as earnings, budget, Fed policy, RBI update
A sudden breakout or breakdown in a tight-range market
Goal of the Strategy
The call benefits if the price rises sharply
The put benefits if the price falls sharply
You profit if the move is strong enough to cover the total premium paid
Example: Long Straddle Setup
Assume Stock XYZ is trading at ₹100.
You do the following:
Buy ₹100 Call @ ₹6
Buy ₹100 Put @ ₹5
Net premium paid = ₹6 + ₹5 = ₹11
This is the maximum possible loss.
Payoff Table
Stock Price at Expiry
Call Option Value
Put Option Value
Total Profit/Loss
80
0
20
+9
90
0
10
–1
100
0
0
–11 (max loss)
110
10
0
–1
120
20
0
+9
Key Metrics
Metric
Value
Net premium paid
₹11 (total of both options)
Max loss
₹11 (if price stays at ₹100)
Max profit
Unlimited on either side
Breakeven points
₹89 and ₹111
Ideal scenario
Big move up or down beyond breakeven
Pros and Cons of a Straddle
Advantages
Disadvantages
Profits from big moves in any direction
Premium cost is high (double option cost)
Limited loss (only premium paid)
Needs significant move to breakeven
Useful in uncertain conditions
Time decay hurts quickly if price stagnates
When to Use a Long Straddle
Before an earnings release
Before a budget or policy announcement
When the stock or index is coiling in a narrow range
When implied volatility is low but expected to rise
Key Takeaways
A long straddle involves buying both a call and a put at the same strike and expiry
It is non-directional and profits from strong volatility
Loss is capped at the total premium paid (₹11 in this example)
Profit is unlimited if the asset moves far beyond breakeven points
Ideal for traders who expect a large move but are unsure of the direction