Overview
A long straddle buys both the at-the-money call and the at-the-money put. It is a pure bet on a large move, regardless of direction. If the underlying breaks hard either way, one leg pays for the whole position and then some; if it sits still, both decay.
This is the classic event trade — earnings, policy decisions, results — where a big reaction is likely but the direction is genuinely uncertain. Risk is limited to the combined premium paid; the reward can be very large to the upside and substantial to the downside.
How it’s built
Buy 1 at-the-money call and buy 1 at-the-money put of the same strike and expiry. The total premium paid is the maximum loss.
| Action | Option | Strike | Premium | Role |
|---|---|---|---|---|
| Buy | Call (CE) | 24,000 | 180 | Buy ATM call |
| Buy | Put (PE) | 24,000 | 170 | Buy ATM put |
Payoff at expiry
The diagram is computed from the legs above on an illustrative NIFTY 50 snapshot — spot 24,000, one lot of 75.
Worked example — NIFTY 50
Ahead of a major event with NIFTY at 24,000, you buy the 24,000 call for 180 and the 24,000 put for 170 — a debit of 350 points (₹26,250 per lot), which is the most you can lose.
You need a move beyond 23,650 or 24,350 to profit. A sharp rally or sell-off lets one leg run while the other is capped at its premium. The enemy is a quiet market: if NIFTY finishes near 24,000, time decay claims most of the debit.
At expiry
| If the market… | Outcome |
|---|---|
| NIFTY moves sharply either way | Profit grows with the size of the move |
| NIFTY at 23,650 or 24,350 | Breakeven on either side |
| NIFTY expires near 24,000 | Maximum loss — both premiums decay |
Greeks & behaviour
When to use it
- A binary event is due and a large reaction is likely but the direction is unknown.
- Implied volatility is cheap relative to the move you expect.
- You want strictly limited risk with large convex payoff.
Risks & caveats
- A quiet, range-bound market is the worst outcome — full premium can decay.
- A volatility crush after the event can hurt even if price moves a little.
- It needs a genuinely big move to clear the combined premium.
Key takeaways
- Pure long-volatility bet with capped risk.
- Profits from a large move in either direction.
- Buy it cheap; beware the post-event volatility crush.
Test this on live data
Load the Long Straddle preset in the Strategy Builder to see real strikes, premiums and a live payoff graph.
Educational content only — not investment advice or a recommendation. All strikes, premiums and figures are illustrative and do not reflect live market quotes. Options carry significant risk; consult a registered adviser before trading.