Definition
Long Straddle
A long straddle buys a call and a put at the same strike to profit from a big move in either direction.
You buy an at-the-money call and an at-the-money put on the same underlying and expiry. The position makes money if the price moves sharply up or down, enough to cover the combined premium of both legs. It is a bet on volatility, not direction.
Indian traders set up long straddles on Nifty or a stock ahead of high-impact events — results, the Budget, RBI policy — expecting a violent move. The danger is IV crush: if the event passes quietly, both premiums collapse and the straddle loses even if you guessed the move was coming.
Related terms
- VegaVega measures how much an option's premium changes when implied volatility rises or falls by 1%.
- IV CrushIV crush is the sudden collapse in implied volatility — and option premiums — right after a major event passes.
- Short StraddleA short straddle sells a call and a put at the same strike to profit when the underlying stays calm and range-bound.
- Long StrangleA long strangle buys an out-of-the-money call and an out-of-the-money put to profit from a large move at lower cost.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.