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Straddle

Buying a call and a put at the same strike and expiration to bet on a big move in either direction.

OptionsIntermediate

Definition

A long straddle profits if the stock moves far enough either way to cover the total premium paid. It loses if the stock stays near the strike as time value decays, especially if implied volatility falls.

Formula

Breakevens at expiry = strike +/- total premium paid

Watch out for

The expected move is already priced into the options, so the stock must move more than the market expects.

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