Straddle(redirected from straddled)
Also found in: Dictionary, Thesaurus, Medical, Legal, Idioms, Encyclopedia, Wikipedia.
A straddle is hedging strategy that involves buying or selling a put and a call option on the same underlying instrument at the same strike price and with the same expiration date.
If you buy a straddle, you expect the price of the underlying to move significantly, but you're not sure whether it will go up or down. If you sell a straddle, you hope that the underlying price remains stable at the strike price.
Your risk in buying a straddle is limited to the premium you pay. As a seller, your risk is much higher because, if the price of the underlying security moves significantly, you may be assigned at exercise to purchase or sell the underlying security at a potential loss.
Similarly, if you choose to buy off-setting contracts when the prices move, it may cost you more than the premium you collected.