Straddle

Buying (or selling) a call and a put at the same strike — a pure bet on how much the stock moves, in either direction.

A straddle means buying both a call and a put at the same strike and same expiration. You are not betting on direction; you are betting on movement. If the stock swings hard either way before expiration, one leg gains enough to cover the other and then some. If it barely moves, both legs quietly lose value.

Say a stock trades at 100 and earnings are due next week. You buy the 100 call and the 100 put, paying 6 in combined premium. You now need the stock above 106 or below 94 just to break even, because you paid for both sides. Traders often open straddles ahead of earnings, drug approvals, or major announcements, when a big move is likely but the direction is anyone's guess.

The classic mistake is buying a straddle when everyone already expects a big event. Implied volatility, and therefore premium, is already inflated. The stock moves, you were right about the move, and you still lose because vega collapsed the moment the news dropped. Watch the price you pay, not just the story.

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Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.