Long Straddle Strategy

The long straddle is a neutral options trading strategy. It is comprised of a long call and a long put, both ATM options . By doing this, traders take positions on both sides of market.

You pay the highest amount of possible premium because you are buying two options, but ATM. For this trade to be profitable, the stock needs to make a move larger than the amount of initial premium paid.


-Buy 1 ATM call
-Buy 1 ATM put

Trade Example

Stock XYZ is trading at $25.00 a share.
– Buy 25 call for $0.59
– Buy 25 put for $0.41
– The total premium paid for this trade is $1.00

Profit & Loss Diagram

Long Straddle Strategy

Long Straddle Summary

Break Even PriceHigher side : Strike price of short call + Premium
Lower Side : Strike price of short put – Premium
Maximum ProfitUnknown. If stock goes to moon, profit would be unlimited
Maximum Profit ScenarioStock either goes to zero or hit the moon
Maximum LossAmount of initial premium paid
Loss ScenarioStock does not make move or the move is less than the amount of initial premium
Why TradeIf you do not have any directional bias in the market , and think that stock can make a huge move in either direction. One scenario where this strategy is popular is near the earnings announcement
When to OpenStock Outlook : Neutral
Volatility : Low so you pay less premium to open the trade
Which strikes to choose?There isn’t much option on this. You have to choose the ATM strike
When to CloseIf the trade is making the desired profit. For me, personally it is one-half of initial premium paid. That’s 50% RoI.
Legs2 legs
Passage of timeNegative impact on trade.
With passage of time, the value of this option decreases
Increase in volatilityPositive impact on trade.
With increase in volatility, the value of option increases. So when you close, you can get higher premium