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Seasoned VeteransVolatile (direction unknown)
Long Straddle
Overview
Buying both a call and a put at the same strike price. You profit from a big move in either direction. The challenge is that you're paying double premium, so you need a significant move to overcome the cost.
Max Profit
Unlimited on upside, substantial on downside
Max Loss
Total premium paid for both options
Breakeven
Strike ± Total premium paid (two breakeven points)
Structure
Long 1 ATM Call + Long 1 ATM Put (same strike, same expiry)
Risk Profile
Unlimited profit on upside, substantial on downside. Risk limited to total premiums. Hurt by time decay and IV crush.
When to Use
Before earnings, FDA decisions, or other events where you expect a major move but are unsure of the direction. When implied volatility is low relative to expected realized volatility.