Option Strategies

Straddle

A straddle uses a call and a put with the same strike and the same expiration. That is the main difference from a strangle, which uses two different out-of-the-money strikes.

Long straddle: buy the call and buy the put (same strike/expiry). You pay a net debit. You want a large move in either direction—large enough that one side’s gains outweigh the premium paid for both sides (plus fees). Buying when implied volatility is already very high can hurt if the stock then sits still and volatility falls.
Short straddle: sell the call and sell the put (same strike/expiry). You receive a net credit and want the stock to stay near the strike through expiration. Profit is limited to the credit; risk is large if the stock makes a big move (theoretically unlimited on the upside for the short call). This is an advanced, high-risk strategy and usually requires substantial margin approval.

Simple long example: Stock XYZ trades at $100. You buy the $100 call for $4.00 and the $100 put for $3.75 (total $7.75 debit, or $775 per straddle). At expiration, roughly speaking, you need XYZ meaningfully above about $107.75 or below about $92.25 before fees to show a profit—because one side must cover both premiums. If XYZ finishes near $100, both options can expire nearly worthless and you lose most of the debit.

Start by understanding the long straddle on paper with liquid underlyings. Treat short straddles as professional territory until you fully understand assignment, margin, and gap risk.