Long Straddle
A Long Straddle buys an ATM call and ATM put on the same strike and expiry. Profits from a large move in either direction.
At a glance
Strategy Snapshot
Market View
Volatility expansion — direction unclear but magnitude high.
Net Cost
Net debit (call + put premium).
Legs
Buy ATM Call + Buy ATM Put (same strike, same expiry)
Max Profit
Theoretically unlimited (call side); large (put side).
Max Loss
Total premium paid (if price stays at the strike at expiry).
Breakeven
Strike ± Total premium paid.
Build
Strategy Construction
Color-coded legs — emerald for long positions, rose for short positions. Strikes shown around reference spot 100.
- BUYLeg 1
1 × 100 CE
Premium 3.00
- BUYLeg 2
1 × 100 PE
Premium 3.00
Visualize
Payoff at Expiry
Conceptual payoff with reference spot = 100. Strikes and premiums shown are illustrative.
Sensitivity
Greeks Exposure
Net portfolio Greek exposure for a typical setup. Bars show directional sensitivity from −1 (short) to +1 (long).
Delta
Directional exposure to underlying price.
0.00
Neutral
Gamma
Sensitivity of Delta to price changes.
+0.90
Strong Long
Theta
Time decay exposure (per day).
-0.80
Strong Short
Vega
Sensitivity to implied volatility shifts.
+0.90
Strong Long
Strengths
Advantages
Why traders use it
- Profits from a big move either way.
- Direction-neutral exposure to volatility.
- Defined max loss equal to debit paid.
Trade-offs
Risks & Disadvantages
What can go wrong
- Expensive — needs significant move to break even.
- Severe IV crush risk after events.
- Time decay accelerates near expiry.
Avoid
Common Mistakes
Watch out for
- Buying right before an event when IV is already inflated.
- Holding too long after the move starts — vega/theta drag.
- Choosing illiquid strikes leading to wide spreads.
AI Insight
LiveLong Straddles win when realized volatility exceeds implied — enter when IV is below the 30-day average ahead of a binary event. Exit fast post-event to avoid vol crush.
Generated by NextQuantLabs AI — for educational guidance only.
Questions
Frequently Asked
Why do straddles lose value after earnings?+
Implied volatility collapses after the event, deflating both legs even if price moves slightly.
Best time to enter a straddle?+
When implied volatility is low relative to expected realized move — ideally days before an event.