Long Straddle

Summary

Simultaneously buying a call option and a put option on the same underlying security with the same strike price and expiration date to profit from a significant price move in either direction.

Description

A long straddle is an options strategy that involves simultaneously buying a call option and a put option on the same underlying security with the same strike price and expiration date. The strategy is designed to profit from a significant price move in either direction and is typically used in a neutral market outlook.
The trader profits from the strategy if the underlying security price moves significantly away from the strike price in either direction before expiration. If the price of the security remains close to the strike price at expiration, both the call option and the put option expire worthless and the trader suffers a loss equal to the net debit paid to enter the position. The maximum profit is unlimited in both directions and is equal to the difference between the underlying security price and the strike price at expiration. The maximum loss is limited and is equal to the net debit paid to enter the position.

Breakeven

Leg 1 plus the net debit paid
Leg 1 minus net debit paid

Sweet Spot

Stock price goes way up or way down.

Max Profit

Unlimited theoretically if the stock goes up or if the stock goes down limited to leg price minus the net debit paid

Max Loss

Limited to the net debit paid