Volatility · Non-directional
Long
Straddle
Don't know the direction but expect a big move? The long straddle profits from volatility itself — a sharp swing either way. Here's how it works and what it costs.
What it is
A long straddle means buying a call and a put at the same strike (usually ATM) and same expiry. You profit if the underlying moves far enough in either direction to cover the combined premium. It's a pure bet on a big move / rising volatility.
Key facts
- Market view: expecting a large move, direction unknown (e.g. ahead of results or an event).
- Construction: Buy 1 ATM call + Buy 1 ATM put (same strike & expiry).
- Net cost: debit (two premiums) — the most you can lose.
- Max profit: large/unlimited if the move is big enough.
- Max loss: total premium paid, at expiry exactly at the strike.
- Breakevens (two): strike + total premium, and strike − total premium.
Worked NIFTY example
NIFTY at 22,500. Buy the 22,500 call for 150 and the 22,500 put for 140 → total premium 290 (illustrative):
- Upper breakeven: 22,500 + 290 = 22,790.
- Lower breakeven: 22,500 − 290 = 22,210.
- Max loss: 290, if NIFTY expires right at 22,500.
- Beyond either breakeven, profit grows with the size of the move.
When to use it
- Before a known catalyst (earnings, budget, policy) where a big move is likely but direction isn't clear.
- When IV is low and you expect it to rise — you want to be long volatility, not short it.
Risks to respect
- IV crush is the killer — if volatility falls after the event, both legs can lose even with a move.
- Time decay works against you on both options every day.
- You need a move bigger than the combined premium just to break even.
Model the straddle live
See both breakevens, the V-shaped payoff and how IV affects it on TradePulse's strategy builder.
Related strategies
- Short Strangle — the opposite: profit from a quiet market.
- Iron Condor — defined-risk neutral income.
- Vega — the volatility Greek that drives straddles.