The Long Straddle strategy

A long straddle buys an ATM call and an ATM put together. It profits from a large move in either direction — the opposite of premium selling. Traders use it ahead of big events (results, policy, budget) when they expect a sharp move but not its direction.

How it pays off

You pay a debit (the two premiums); the maximum loss is that debit. You profit if the underlying moves far enough past breakeven on either side to cover the cost. The enemy is time decay and falling volatility — if the market sits still, both options bleed value.

The volatility trap

Implied volatility is usually high before known events, so straddles are expensive then and can lose even on a real move if IV collapses afterwards (the "IV crush"). Timing and entry price matter as much as the move itself.