Big move either way options strategy
Long straddle
Buy a call and a put at the same strike. Profits from a big move in either direction.
Big move either wayLow IV (buying cheap premium)Defined riskLevel 3 · Buying options
Long straddle payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 1 $100 call · 30 days · $3.59
Buy 1 $100 put · 30 days · $3.26
Net debit $685
Max profitUnlimited
Max loss−$685
Break-evens$93.15 · $106.85
Chance of profit42%
How it works
- Cost = both premiums; that is the max loss.
- Break-evens: strike ± total premium.
- The straddle price is roughly what the market expects the stock to move.
When to use it
- You expect a move bigger than the market is pricing, and implied volatility is low.
Managing the trade
- Before earnings, IV is usually already high, so straddles often lose even after a decent move (IV crush).
Risks
- Time decay on two options; the stock must move a lot, quickly.