What is a straddle?

A straddle is a neutral options strategy where you simultaneously buy or sell both a put option and a call option for the same underlying security, with the same strike price and expiration date.

Long Straddle

This strategy is used when you expect the stock price to move significantly in either direction. It involves buying both a call and a put option with the same strike price and expiration date. You pay a net debit for this strategy and profit if the stock price rises above the upper break-even point or falls below the lower break-even point by expiration.

Short Straddle

This strategy is used when you expect the stock price to remain stable or move within a narrow range around the strike price. It involves selling both a call and a put option with the same strike price and expiration date. You receive a net credit for this strategy and profit if the stock price stays between the two break-even points by expiration.

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Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.