What is a straddle?
Updated 6 June 2026 · by Theo Chen
A straddle is a pure volatility trade: you buy a call and a put at the same strike and expiration — usually at the money — to profit from a big move in either direction. You pay both premiums, and that combined cost is the most you can lose. Direction does not matter; size of the move does.
Want the exact net debit, both breakevens and the percentage move you need? Enter your call and put and the calculator returns the full payoff.
Open the Straddle & Strangle Calculator →How is a straddle built?
A long straddle is just two long options stacked on one strike:
- Buy 1 call at the at-the-money strike.
- Buy 1 put at the same strike and expiration.
Both legs cost you premium, so a straddle opens for a net debit — and because both legs are at the money, that debit is larger than a strangle's. In return, the breakevens are as tight as they get for a volatility trade, so the stock has less distance to travel before the position pays.
Max loss, breakevens and profit
- Max loss = the net debit (call + put premium) × 100, lost only if the stock pins the strike at expiration.
- Upper breakeven = strike + total premium per share.
- Lower breakeven = strike − total premium per share.
- Max profit = unlimited to the upside; large but capped to the downside (a stock can only fall to zero).
The payoff diagram is the tell-tale V: it bottoms at the max loss right at the strike and climbs on both sides.
A worked example
With the stock at $100 you buy the $100 call for $4.00 and the $100 put for $4.00 — an at-the-money straddle for a net debit of $8.00 per share, or $800 per contract. That $800 is your max loss, reached only if the stock sits exactly at $100. Your breakevens are $108 ($100 + $8) and $92 ($100 − $8): the stock has to move about 8% either way just to break even. Finish at $120 and the call is worth $20 — minus the $8 debit, that is +$1,200.
Buy the $100 call ($4) and the $100 put ($4) for an $800 net debit. Max loss $800 right at $100; breakevens $92 and $108; profit grows beyond either.
When a straddle makes sense
Buy a straddle when you expect a large move but cannot call the direction — an earnings report, a court ruling, a binary event — and you think implied volatility is too cheap for the move that is coming. The danger is the opposite case: if the stock sits still, or if implied volatility collapses after the event, both legs bleed and the trade loses even though nothing "went wrong." Always weigh the cost against the expected move. Want a cheaper version that needs a bigger move? That is a strangle.
The bottom line
A straddle only pays if the move beats the combined premium, so the trap is buying one into earnings - the stock can move as expected yet the post-event drop in implied volatility deflates both legs and the trade still loses.
Frequently asked questions
What is a straddle?
A long straddle buys a call and a put at the same strike and expiration — almost always at the money. It is a bet on a big move in either direction: if the stock rallies, the call pays; if it drops, the put pays. You pay both premiums up front, and that combined cost is the most you can lose.
How much can you lose on a straddle?
The full premium you paid — the call premium plus the put premium, times 100 per contract. You lose all of it only if the stock finishes exactly at the strike at expiration, where both options expire worthless. It is a defined-risk trade: the debit is the cap, no matter how the stock moves.
How are the breakevens on a straddle calculated?
There are two, set one combined premium away from the strike. The upper breakeven is the strike plus the total premium paid per share; the lower breakeven is the strike minus it. The stock has to finish beyond one of those two prices for the trade to profit at expiration — which is why a straddle needs a real move, not just a nudge.
What is the difference between a straddle and a strangle?
A straddle puts both legs on the same (usually at-the-money) strike, so it costs more but starts profiting on a smaller move. A strangle buys an out-of-the-money call and put at two different strikes, so it is cheaper but needs a larger move to pay off. Same idea — profit from volatility — at two different price points.
When does buying a straddle make money?
Only when the stock moves far enough, fast enough, to clear a breakeven before time decay erodes the premium — and without implied volatility collapsing. The classic trap is buying a straddle into earnings: the stock can move exactly as expected, yet the post-event "IV crush" deflates both options and the trade still loses. Compare the expected move to the cost first.
Related questions
- What is the difference between a straddle and a strangle?
- What is the expected move and how do I compare it to a straddle's cost?
- What is implied volatility and why does it crush after earnings?
- How should I trade options through an earnings report?
Run the numbers
Compute a straddle's net debit, breakevens and the move it needs in the Straddle & Strangle Calculator, weigh it against the Expected Move Calculator, check whether volatility is cheap with the IV Rank Calculator, and compare the two structures in Strangle vs Straddle.
Educational explainer only — not financial advice. A long straddle can lose its entire premium, and time decay plus a post-event volatility drop work against it. Size positions to your own risk tolerance.