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Straddles and strangles: trading volatility

7 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

A long straddle buys a call and a put at the same strike and expiry. It profits from a big move either way, and loses (at most the two premiums) if the price stays still. A long strangle uses an OTM call and an OTM put: cheaper, but needs a bigger move.

These are bets on realised volatility beating implied volatility. Before earnings, IV is usually high, so straddles are expensive and often lose to IV crush.

Short straddles and strangles sell both options. They profit in calm markets but have unlimited or very large losses in a big move. They do not pass the Vestora safety rule.

Key takeaways

  • Long straddle/strangle = bet on a big move, either way.
  • Max loss for buyers = premiums paid.
  • Short versions carry unlimited risk.

Check your understanding

1. Buy a $100 call for $4 and a $100 put for $4. Breakevens at expiry?

  • $96 and $104
  • $92 and $108
  • $100 only
  • $90 and $110
Show the answer

$92 and $108. Total cost $8: 100 ± 8.

2. A long straddle profits most when...

  • Price stays exactly at the strike
  • Price moves sharply in either direction
  • Implied volatility falls
  • Time passes
Show the answer

Price moves sharply in either direction. It needs movement larger than the premiums paid.

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General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.