What is a long straddle?
A long straddle is two purchases at once: one call and one put on the same underlying, with the same strike and the same expiration. Most traders pick the strike closest to the current price, so both options are at the money. The call pays if the stock rises far enough, the put pays if it falls far enough, and you do not need to know which. What you need is size: by expiration, the move has to be bigger than what you paid for both options.
Hypothetical example: stock XYZ trades at $100. With 30 days to expiration, the $100 call costs $3.60 and the $100 put costs $3.40, so the straddle costs $7.00 per share, or $700 for one call and one put covering 100 shares each. That $700 is the maximum loss, and it happens if XYZ finishes exactly at $100, where both options expire worthless. At expiration only one of the two can be in the money, so the straddle is worth the distance between the stock and $100:
- XYZ at $100: both options worthless, a loss of $700.
- XYZ at $104: the call is worth $4.00, a loss of $300.
- XYZ at $93 or $107: one option is worth $7.00, the breakeven.
- XYZ at $90: the put is worth $10.00, a gain of $300.
- XYZ at $115: the call is worth $15.00, a gain of $800.
What is a long strangle?
A long strangle also buys a call and a put with the same expiration, but at two different strikes, both out of the money: a call above the current price and a put below it. Out-of-the-money options are cheaper, so the strangle costs less than the straddle. The trade-off is a wider dead zone: the stock has to travel past one of the strikes before either option is worth anything at expiration.
Same hypothetical stock at $100, same 30 days: the $105 call costs $1.65 and the $95 put costs $1.35, so the strangle costs $3.00, or $300. The maximum loss is that $300, and it applies anywhere between $95 and $105 at expiration, not at one price only. The breakevens are $108 ($105 + $3.00) and $92 ($95 − $3.00). At $90 the put is worth $5.00, a gain of $200; at $115 the call is worth $10.00, a gain of $700. The drawing at the top of the page shows both shapes side by side.
How to calculate straddle and strangle breakevens
Both positions have two breakevens at expiration, one above the stock and one below. Add up the premiums you paid for the call and the put, per share, and apply the formulas below. In our example the straddle needs a move of more than $7, or 7%, by expiration, and the strangle more than $8, or 8%.
These are expiration numbers. Before expiration the options still hold time value, so you can close earlier for more or less than they suggest. An options profit calculator shows the expiration picture for any strikes and premiums.
- Long straddle: upper breakeven = strike + total premium; lower breakeven = strike − total premium.
- Long strangle: upper breakeven = call strike + total premium; lower breakeven = put strike − total premium.
- Maximum loss for either: total premium × 100 per pair of contracts, plus commissions.
- Maximum gain: unlimited in theory if the stock rises; if it falls, the lower breakeven × 100, reached only if the stock went to zero.
- Long straddle
- Buying a call and a put on the same underlying with the same strike and expiration, usually at the money. It profits from a large move in either direction and loses at most the premium paid.
- Long strangle
- Buying an out-of-the-money call and an out-of-the-money put with the same expiration. It costs less than a straddle but needs a larger move to reach its breakevens.
- Breakeven
- The stock price at expiration where the position neither gains nor loses, before costs. A straddle or strangle has two, one above and one below the current price.
- IV crush
- The sharp drop in implied volatility after a known event such as an earnings report. It cuts the price of calls and puts alike, so it hits both legs of a straddle.
Straddle vs strangle: which one should you use?
Neither is better in general. They trade cost against distance. With the same hypothetical stock and expiration:
A straddle fits the view that a move is coming but may be moderate. A strangle fits the view that any move will be large, and accepts that a medium move may leave it with nothing. Both throw away direction. If your chart gives you one, for example a long setup marked by the UpTickFlow indicator on the underlying, a single call or put or a vertical spread expresses that view more directly; the options strategies map compares the choices.
- Cost: straddle $700, strangle $300.
- Breakevens: straddle $93 and $107, a 7% move; strangle $92 and $108, an 8% move.
- Maximum loss: the straddle loses $700 only if the stock finishes exactly at $100; the strangle loses its $300 anywhere from $95 to $105.
- Small moves: at $104 both lose about $300. The straddle has a $4 call left; the strangle has nothing.
- Large moves: at $115 the straddle gains $800 and the strangle $700. Beyond the strikes both rise dollar for dollar, with the straddle $1 a share ahead.
- Time decay: both lose value each day the stock sits still. The strangle loses fewer dollars but a larger share of its price.
Straddles and earnings: an IV crush example
Earnings look like the perfect straddle setup: a big move is likely and nobody knows which way. The catch is that everyone knows the report is coming. Implied volatility usually climbs into the report, so the options are expensive, and it falls sharply once the news is out. That drop, IV crush, hits both legs at once. Our implied volatility guide covers it in depth.
Hypothetical example: XYZ trades at $100 the afternoon before an after-close report. The $100 options expiring in 7 days carry an implied volatility of 80%: the call costs $4.50 and the put $4.40, so the straddle costs $8.90, or $890. The company reports, XYZ opens 6% higher at $106, and IV falls to 30%. The call is now worth about $6.20, almost all of it $6 of intrinsic value, and the put about $0.10. The straddle is worth about $6.30: a loss of about $260, or 29%, on a 6% move.
The stock moved, but less than the $8.90 the straddle had priced in, and the volatility premium that made up the whole price before the report was mostly gone by the open. Here is the straddle the next morning in the same hypothetical model, depending on where XYZ opens:
- Flat at $100: about $3.10, a loss of about $580.
- Down 6% to $94: about $6.10, a loss of about $280.
- Up 6% to $106: about $6.30, a loss of about $260.
- Up 12% to $112: about $12.10, a gain of about $320.
Does the straddle price show the expected move?
Many traders read the price of the at-the-money straddle as a rough market estimate of how far the stock may move by expiration. In the earnings example, an $8.90 straddle on a $100 stock suggests the options were pricing a move of roughly $9 either way, about 9%. It is a quick way to compare the move you expect with the move you are paying for.
Treat it as an approximation. In a standard pricing model, an at-the-money straddle costs about 0.8 times the one-standard-deviation move from the formula in our implied volatility guide (price × IV × √(days ÷ 365)): for the 30-day example, about $7 against a one-standard-deviation move of about $8.60. Skew, bid-ask spreads and the strike you pick shift it further. And the market can be wrong both ways: stocks sometimes move far more than the straddle priced in, and sometimes much less.
The practical use: if your plan only needs a move smaller than the straddle price, buying the straddle means paying for more movement than you expect. If you expect a much bigger move, ask what you know that the option prices do not.
Time decay: what holding a straddle costs each day
A long straddle owns two options, so it pays time decay (theta) on both. In the 30-day example, with the stock still at $100 and implied volatility unchanged, the straddle loses about $0.11 a day, roughly $11 per pair of contracts, and the decay speeds up in the final weeks. The strangle loses about $0.10 a day: fewer dollars, but a larger share of its $3.00 price. Theta and vega are explained in our options Greeks guide.
That makes timing part of the trade. A straddle bought weeks before an expected move bleeds while you wait; one bought just before an event pays for the inflated volatility. Decide the exit before you enter: a date by which the move must come, and the gain or loss at which you close. Closing early also keeps in-the-money legs away from expiration-day exercise, explained in what happens when options expire.
Short straddle and short strangle: why the risk is large
Every long position has a seller on the other side. A short straddle sells the call and the put at the same strike; a short strangle sells an out-of-the-money call and an out-of-the-money put. The seller collects the premium and profits if the stock stays quiet and implied volatility falls, which is why some traders sell them before earnings.
The risk is the mirror image of the buyer’s. The most a seller can make is the premium collected, while the short call has theoretically unlimited loss if the stock rallies and the short put can lose the strike minus the premium, times 100, if the stock collapses. One gap through a breakeven can erase many months of collected premium. Options on US stocks and ETFs can also be assigned early, and brokers allow uncovered selling only at high approval levels with substantial margin. This guide does not recommend selling them.
If you want to understand selling premium with a cap on the loss, an iron condor is a short strangle with protective options bought further out. Income strategies built on shares or cash, the covered call and the cash-secured put, carry stock risk instead of open-ended option risk.