Straddle
Principles of Finance glossary · Risk, Return & Portfolio Theory
Definition
Long call plus long put at the same strike; a bet on high realized volatility.
Straddle in plain English
A straddle is a bet that a stock is about to move a LOT, without needing to guess whether it goes up or down. You set it up by buying two options at the same strike price at once -- a 'call' (which pays off if the price shoots up) and a 'put' (which pays off if it crashes) -- so a big swing in either direction wins. It's like betting that a shaken soda bottle will spray when opened: you don't care which way it goes, only that it's dramatic. The catch is you paid for both options, so if the stock just sits still and does nothing, you lose that cost.
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