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Straddle

Buying (or selling) a call and a put at the same strike and expiration; a bet on the size of a move rather than its direction.

Payoff of a long straddle at expiryA V shape with its point at the strike and both arms rising through zero as the price moves away.Profit / loss per share08090110120Profit if the move is big enough, in either directionStrike 100Breakeven 92Breakeven 108Max loss 8 — both premiums, if it finishes at 100Underlying price at expiry
Long straddle: payoff at expiry. A 100 call and a 100 put bought together for 8 make a V. A quiet market that ends near 100 costs the whole 8; the position only turns positive once the price finishes below 92 or above 108, whichever way it goes.

A long straddle profits if the stock moves more than the combined premium in either direction. A short straddle collects that premium and profits if the stock stays near the strike, with theoretically unlimited risk.

The at-the-money straddle price is the market's implied move for that period, which is why traders quote it before earnings-reports.

Example: stock at $100, the $100 call is $4 and the $100 put is $4. The straddle costs $8, so the buyer needs the stock above $108 or below $92 at expiration. The implied move is 8%.

Related: strangle, implied-volatility, iv-crush, at-the-money

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