Straddle
Buying a call and a put at the same strike — profits from a large move in either direction.
Long straddle: buy ATM call + buy ATM put (same K and T). Net debit = C + P. Maximum loss = net premium (if stock expires exactly at K). Maximum profit = unlimited (call side) or K − premium (put side). Breakevens: K + net premium (upper), K − net premium (lower). Long straddle is a long volatility trade: it profits when realized volatility exceeds implied volatility. Short straddle (sell both) is the opposite — collect premium but exposed to large moves.
Related Terms
Bull Call Spread
Buy a lower-strike call and sell a higher-strike call — a leveraged bullish bet with limited loss.
Implied Volatility (IV)
The volatility that, when input into the BSM model, makes the model price equal to the market price of an option.
Vega (ν)
The sensitivity of an option's price to a 1% change in implied volatility.