Long Straddle
Composition
Long (buy) 1 Call option and long (buy) 1 put option at same strike price.
Risk/Reward
Max Reward: Unlimited potential in either direction. Important factor is that market has to move.
Max Risk: Limited to the premium paid up front for the position (1 call and 1 put option).
Characteristics
The Long straddle option trade is best used when trader is expecting a spike in volatility and a movement in any direction. Important factor is hat market must move. This long straddle is a commonly used trade during earnings announcements due to the tendency of stocks making large moves in these dates.
Used in times when trader believes the market is going to make a large move but not sure in what direction. You’re essentially make a bet in each direction.
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