Strategy #0000000008 · Options and payoff structures
Long straddle and strangle
Pay upfront without choosing a direction; the move must be large enough to cover the ticket.
Buy a call and a put with the same expiry. A straddle uses the same strike; a strangle uses a lower put strike and a higher call strike. At expiry, price must move beyond the combined premium to profit.
A sufficiently large move either way may offset the premium paid; this is not a price forecast.
Three ways in
Understand the story. Then inspect the risk.
Start with a familiar situation, check the payoff, then test how the numbers change.
The idea · in two minutes
Rose buys both tickets, but the show must be dramatic enough to break even
Rose does not know whether earnings will be good or bad, but expects a large move. She buys a 100 call and 100 put for a total premium of 6.85. Jack asks which way she is betting; Rose says she is betting that it “actually moves”.
At expiry at 100, both options have no intrinsic value and she loses 6.85. At 110 the call is worth 10 and the put expires, leaving 3.15 after cost; at 90 the put is worth 10 and the result is also 3.15.
The long straddle breaks even at K−D and K+D. If an event premium is already high, even a correct directional call can lose value after the announcement when implied volatility falls.
- S=80The put has 20 intrinsic value less the 6.85 total cost.
- S=93.15Lower expiry break-even.
- S=100Maximum loss is both premiums.
- S=106.85Upper expiry break-even.
- S=120The call has 20 intrinsic value less the total cost.
Illustrative research examples only. They are not live signals or a recommendation.
The mechanics · payoff and exposure
At expiry, a long straddle earns the absolute distance from the strike minus the combined call and put premium.
S_T is expiry price, K is the shared strike, and D=C₀+P₀ is total premium per share. A strangle uses K_p<K_c.
Greeks: the directional intuition
- Delta
- Measures first-order sensitivity to the underlying price.
- Gamma
- Measures how quickly delta changes as the underlying moves.
- Theta
- Captures the effect of time passing, all else equal.
- Vega
- Measures sensitivity to implied volatility.
At expiry, a long straddle earns the absolute distance from the strike minus the combined call and put premium.
Practical context · published observations
Long straddle P&L: read the record with its caveats.
The chart uses the published figures or explicitly labelled study inputs below. A historical index or model replay is not the same as an investor’s realised account return.
不含平倉 IV、交易成本、稅、資金成本或股息；逐點情境不能用來推斷策略勝率。 Source ↗ · Methodology ↗
Change assumptions and inspect the scenario
Inputs illustrate the strategy mechanics; they are not live quotes, forecasts or investment advice.
Variants · same family, different risk levers
Eleven long-volatility variants change wing distance, direction or timing.
A strangle separates strikes; a strap or strip weights one side; event and IV rules alter entry timing.
| Related strategy | Relationship | What changes | New cost or risk |
|---|---|---|---|
| Long strangle | Wider wings | Buys a lower put and higher call, usually reducing initial cost. | Needs a larger move to clear both break-evens. |
| Long guts | In-the-money wings | Buys a higher-strike put and lower-strike call, typically both in the money. | Costs more and requires explicit treatment of intrinsic value and financing. |
| Long call synthetic straddle | Synthetic exposure | Combines a long call with a linear position to approximate two-sided convex exposure. | Funding, borrow, dividends and replication error differ from owning both options. |
| Long put synthetic straddle | Synthetic exposure | Uses a long put and matching linear exposure to approximate a two-sided position. | Replication, margin and funding can erase the apparent difference. |
| Strap | Upside-weighted volatility | Buys two calls and one put. | A large fall earns less than a comparable rise. |
| Strip | Downside-weighted volatility | Buys one call and two puts. | A large rise earns less than a comparable fall. |
| Volatility trade design | Strike selection | Chooses between at-the-money straddles and out-of-the-money strangles to balance cost and distance. | There is no universally optimal wing width; it depends on the distribution and event view. |
| Earnings-announcement straddles | Event strategy | Concentrates exposure around an earnings release to target a jump. | Post-event IV crush can outweigh the realised move. |
| Dynamic FX-option volatility trading | Asset and management variant | Dynamically adjusts volatility exposure in currency options. | Requires control of currency, expiry, delta hedge and transaction costs. |
| Earnings uncertainty straddles | Event research | Studies event uncertainty and straddle pricing or returns around announcements. | Sparse events, timestamp rules and selection bias can distort conclusions. |
| IV-percentile entry timing | Timing signal | Uses a historical IV percentile to screen straddle entries. | A low historical percentile does not prove options are cheap or future realised volatility will rise. |
Expiry intrinsic value is not an early-exit price; IV crush, theta and execution matter.
Read beyond the summary
References
Primary sources and research used to describe the strategy and its limits.