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Big move, either direction IntermediateVolatility

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? 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.

20000BE 19600BE 20400+608+500-508Underlying price at expiry
Max Profit
Unlimited on the upside, very large on the downside.
Max Loss
Total premium paid (both legs) — realised if price sits exactly at the strike at expiry.
Breakeven
Upper = Strike + Total premium; Lower = Strike − Total premium.
Outlook
Big move, either direction

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.

Frequently Asked Questions

Why did I lose after the event even though Nifty moved?
Implied volatility usually collapses once the event passes ('IV crush'). If the move was smaller than what the pre-event IV had priced in, both options lose value.
Straddle vs Strangle?
A straddle uses the same ATM strike (costlier, smaller breakevens); a strangle uses OTM strikes (cheaper, wider breakevens, needs a bigger move).
How do I choose expiry?
Give the move enough time, but not so long that Theta bleeds you. Many event traders use the nearest expiry that comfortably covers the catalyst date.

Sources & references

Educational content only — figures are illustrative and exclude costs. Not investment advice.

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Iron Butterfly
Educational content only — not investment advice. The example above uses illustrative numbers and does not reflect live market prices. Options trading involves substantial risk. See our Risk Disclosure and SEBI Disclaimer.