Straddle.

In plain English

A long straddle combines a call and a put with the same strike price and the same expiration date. It profits if the underlying stock moves far enough in either direction to cover the combined premium of both contracts. Direction does not matter; size of the move does. Because two premiums are paid, the break-even points sit well above and below the strike. A quiet market is the losing outcome, since both contracts lose extrinsic value as expiration approaches. Option prices already reflect expected movement, so a big move that was widely anticipated may not be enough.

01Why it matters

It shows plainly that options price expected movement, not direction, and that a correct guess about volatility can still lose if the move is smaller than the premium paid.

02The math, step by step

With a stock at $100, a $100 call costs $4 and a $100 put costs $4, a total of $8. The position breaks even at $108 or $92. A move to $105 is a $3 loss even though the direction call was right.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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