1. What it is
Buy a call and put at the same strike and expiration for a long straddle; sell both for a short straddle. This structure uses the long version.
2. Why use it
Trade the size of a move around one strike rather than choosing only its direction.
3. How the numbers work
SPY · Teaching example · Reference price $500
All option legs have the same expiration. Premiums are per share. Each standard contract represents 100 shares.
| Side | Option type | Strike | Quantity | Premium |
|---|---|---|---|---|
| Buy | Call | 500 | 1 | 5 |
| Buy | Put | 500 | 1 | 5 |
- Net premium
- −5 × 1 − 5 × 1 = -$10.00 × 100 = -$1,000.00
- Maximum expiration profit
- Theoretically unlimited
- Maximum expiration loss
- $1,000.00
- Expiration breakeven
- $490.00 / $510.00
Expiration scenarios
| Underlying at expiration | Profit / loss |
|---|---|
| 490 | $0.00 |
| 500 | -$1,000.00 |
| 510 | $0.00 |
Illustrative prices, before fees. Expiration payoffs exclude early assignment and changes in time value or volatility. Editing strikes keeps the entered premiums; no market quotes are fetched.
Explore this example ↗4. How it changes
The long version has positive gamma and vega and usually negative theta. The short version reverses these signs. Delta near zero does not remove movement risk.
5. What to watch for
A long straddle risks its premium. A short straddle has unlimited upside loss and a large downside loss, while its maximum profit is the credit.
Large price movement alone does not guarantee a profit for the buyer: compare it with the premium paid and any IV decline. Compare the actual option sides with the illustrated example.