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straddle |
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Straddle An options strategy with which the investor holds a position in both a call and put with the same strike price and expiration date. ![]() Notes: Straddles are a good strategy to pursue if an investor believes that a stock's price will move significantly, but is unsure as to which direction. The stock price must move significantly if the investor is to make a profit. As shown in the diagram above, should only a small movement in price occur in either direction, the investor will experience a loss. As a result, a straddle is extremely risky to perform. Additionally, on stocks expected to jump, the market tends to price options at a higher premium, which ultimately reduces the expected payoff should the stock move significantly. Straddle Purchase or sale of an equal number of puts and calls with the same terms at the same time. Related: Spread.
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