Quick Definition

A straddle is an options trading strategy involving the purchase or sale of both a call and a put option at the same strike price and expiration date.

Examples

• 1An investor anticipates significant price movement in a stock due to an upcoming earnings report but is unsure of the direction. They buy a straddle to profit from either an upward or downward price movement.
• 2During periods of high market volatility, a trader uses a straddle to capitalize on large price swings without committing to a particular direction.
• 3A speculative trader buys a straddle before a major economic announcement, such as an interest rate decision, to leverage the potential sharp movement in stock or index prices.

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