Straddle¶

OVERVIEW¶

A straddle is an options position combining a call and a put at the same strike price and the same expiration date. Tapeboard surfaces straddle pricing, breakevens, and implied move estimates directly in the market terminal.

Note

A long straddle is direction-agnostic. Profit depends entirely on the size of the realized move relative to the implied move already priced into the premium — not on which direction the underlying moves.

Position	Action	Profits When
Long straddle	Buy call + buy put	Underlying moves beyond breakevens
Short straddle	Sell call + sell put	Underlying stays near strike through expiration

STRUCTURE AND PRICING¶

Select a strike K (typically at-the-money) and an expiration. Buy or sell one call and one put at that strike.

Variable	Definition
C	Call premium
P	Put premium
Total debit	C + P
Upper breakeven	K + (C + P)
Lower breakeven	K − (C + P)
Max loss (long)	C + P
Max profit (long)	Unbounded on upside; (K − C − P) × 100 on downside

Implied move approximation

The ATM straddle price is a standard proxy for the expected move into a binary event:

Expected move ≈ (C + P) / Spot

A stock at $100 with a $4 straddle prices a ±4% move by expiration.

WORKED EXAMPLE¶

TSLA earnings straddle, April 2026 expiration.

Input	Value
Stock price	$245.00
$245 call	$9.40
$245 put	$9.10
Total debit	$18.50 ($1,850 per contract)
Upper breakeven	$263.50
Lower breakeven	$226.50
Implied move	~7.5%

Scenario A — Large gap up

TSLA opens at $268 the following session. Call worth ~$23, put decays to $0.15. Combined value $23.15. Profit $465 per contract (+25%).

Scenario B — Flat open with IV crush

TSLA opens at $246. Post-earnings implied volatility collapses 35%. Call drops to $2.80, put to $2.10. Combined value $4.90. Loss $1,360 per contract (−73%).

Tip

Scenario B is the most common straddle outcome. A 3–5% stock move is not enough if implied volatility was pricing a larger move before the event resolved.

WHEN TO USE STRADDLES¶

Use Case	Description
Earnings plays	IV priced cheaply relative to the ticker's historical realized move
Binary events	FDA decisions, Fed meetings, court rulings, merger close dates
Pure volatility bets	Directional view absent; conviction only on magnitude of move
Gamma scalping	Long straddles carry positive gamma; delta-hedge dynamically to harvest realized vol

LIMITATIONS AND RISKS¶

Note

The primary risk in earnings straddles is IV crush — implied volatility collapses the moment uncertainty resolves, regardless of the stock's move.

Risk	Detail
IV crush	Both legs lose value when implied volatility collapses post-event
Theta decay	Both legs bleed simultaneously; time works against the long holder
Short straddle loss	Unbounded on the upside; a gap event can wipe a position in one session
Directional drift	As the underlying moves, the straddle loses its direction-neutral character and becomes a synthetic long or short

Tip

Monitor the delta of your straddle after initiation. A straddle is only truly direction-neutral at inception when it sits exactly at-the-money.

Term	Relationship to Straddle
Iron Condor	Defined-risk short-volatility alternative
Implied Volatility	The core input a straddle trader is betting on
Options Delta	Near zero at inception; drifts as spot moves away from strike
Options Gamma	Peaks exactly at the ATM straddle strike
Options Theta	The daily time cost of holding a long straddle