Straddle

A straddle is an options strategy where a trader buys (or sells) both a call and a put on the same underlying stock, with the same strike price and the same expiration date. A call gives the buyer the right to buy the stock at the strike price; a put gives the buyer the right to sell it at the strike price. By holding both at once, the trader is positioned to profit from a big price move in either direction, rather than betting on which way the stock will go.

The most common version is a "long straddle," where you pay two premiums — one for the call, one for the put — and profit if the stock moves far enough above or below the strike to cover both costs. Because you paid twice, the stock needs a larger move than a single option position would require just to break even. If the stock barely moves, both options can expire worthless and you lose the full amount paid for both.

The opposite is a "short straddle," where a trader sells both the call and the put, collecting two premiums up front. This position profits if the stock stays roughly at the strike price and both options expire worthless, but carries open-ended risk if the stock makes a large move in either direction, since the trader would owe the difference on whichever option went in-the-money.

The nuance that trips people up is that a straddle is a bet on the size of a price move (and often on implied volatility, which is the market's expectation of how much the stock will swing), not on direction. Even if you correctly guess that a stock is about to move sharply, a long straddle can still lose money if the move happens too slowly or if implied volatility drops sharply after you buy it, which shrinks the value of both options.