Long Straddle
Buy an ATM call and put to profit from a large move in either direction, regardless of which way.
What is a Long Straddle?
A Long Straddle buys an ATM call and an ATM put at the same strike and expiry. It is a pure volatility bet: you profit if the underlying makes a large move in either direction, big enough to cover the combined premium. Direction does not matter — magnitude does. It is the classic 'event' trade around results, budgets, or elections where a big move is expected but the direction is unknown.
Payoff Diagram
Profit & Loss at expiry
Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.
Construction
- Buy 1 ATM Call.
- Buy 1 ATM Put (same strike, same expiry).
- Total premium paid = maximum loss.
When to Use It
Use before a known catalyst when you expect a violent move but are unsure of direction. Crucially, enter when IV is low relative to the expected move — buying straddles into already-high IV often loses to the post-event 'volatility crush'.
The Greeks
Delta ≈ 0 at entry, Positive Gamma, strongly Positive Vega, strongly Negative Theta.
Risks & Considerations
- Double time decay — you pay Theta on two long options.
- Volatility crush after the event can cause a loss even if the move happens.
- The market must move more than the combined premium just to break even.
Worked Example (Nifty)
Illustrative trade — lot size 75
Nifty 20,000. Buy 20,000 CE ₹200 + 20,000 PE ₹200 = ₹400 (₹30,000 max loss). Breakevens 19,600 and 20,400. If Nifty jumps to 20,700, call worth ₹700, put ₹0, profit = (700 − 400) × 75 = ₹22,500. A move to 19,300 pays similarly. Between 19,600 and 20,400 you lose part or all of the premium.