A long straddle is a combination of buying a call and buying a put, both with the same strike price and expiration. Together, they produce a position that should profit if the stock makes a big move either up or down.
Typically, investors buy the straddle because they predict a big price move and/or a great deal of volatility in the near future. For example, the investor might be expecting an important court ruling in the next quarter, the outcome of which will be either very good news or very bad news for the stock.
Looking for a sharp move in the stock price, in either direction, during the life of the options. Because of the effect of two premium outlays on the breakeven, the investor’s opinion is fairly strongly held and time-specific.
This strategy consists of buying a call option and a put option with the same strike price and expiration. The combination generally profits if the stock price moves sharply in either direction during the life of the options.
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