A straddle is an options strategy where you buy both a call and a put at the same strike price and expiration date.
Tesla is $200:
Profit if stock rises above $210 or falls below $190. Lose money if it stays between $190-$210.
You buy a call and put, betting the stock will move big in either direction. Profits from large volatility expansion.
Risks:
You sell a call and put, betting the stock will stay flat. Profits from time decay and volatility contraction.
Profits from theta, but risk is unlimited. If the stock moves far enough, you lose money.
Traders often buy straddles before earnings, expecting big moves. Sell straddles when IV is high and you expect mean reversion.
If the trade moves against you, you can:
Related: Long Straddle, Short Straddle, Strangle, Earnings Trades
