Back

Straddle

A strategy that combines the simultaneous purchase or sale of the same number of generally at-the-money call options and put options with the same features as regards the underlying, the expiration date and the exercise price.

The trader in a long position is betting on the significant volatility of the price of the underlying, regardless of the direction of price movement, given the total premium to be paid, whereas the trader in a short position is betting on relative price stability.