Long Straddle

A long straddle is an Options trading strategy that involves buying both a call option and a put option for the same underlying Asset, with the same Strike Price and expiration date. This strategy is used when an investor anticipates significant price movement in either direction but is uncertain about the direction of that movement.

Investors typically use a long straddle in scenarios where they expect high volatility, such as before earnings announcements, economic reports, or major market events.

Example 1: An investor buys a call option and a put option for Company XYZ, both with a Strike Price of $50, expiring in one month. If the Stock price moves to $60 or $40, the investor can profit from the movement, while losses are limited to the total premium paid for both Options.

Example 2: An investor anticipates a significant move in the Stock of a tech company ahead of its product launch. They purchase a long straddle by buying a call and put option at a $100 Strike Price. If the Stock price jumps to $120, the call option can be exercised for profit, while if it drops to $80, the put option can be profitable.