Stock Market · Option Strategies

Long straddle

A long straddle profits from big moves in EITHER direction. You buy both a call and a put at the same strike and same expiry. You don't care which way the market goes. You just need it to move a LOT.

Construction

Example: Nifty at 22,000, expecting a large move (like a budget or RBI policy).

• Buy 22,000 call @ ₹250
• Buy 22,000 put @ ₹240
• Total premium paid: ₹490

Payoff

• Breakeven above: 22,000 + 490 = 22,490
• Breakeven below: 22,000 − 490 = 21,510
• Maximum loss: ₹490 × 75 = ₹36,750 (if Nifty stays exactly at 22,000)
• Profit: unlimited in either direction beyond breakevens

> The straddle requires a move of at least 2.2% in either direction just to break even.

[reveal:If Nifty closes at exactly 22,000 on expiry, how much do you lose?||Both call and put expire worthless. You lose the FULL premium paid (₹490 × 75 = ₹36,750). The exact strike is the worst case for a straddle buyer, and a common trap.]

The enemy of the straddle: IV crush

Before major events, implied volatility is elevated. Options cost more. After the event, IV collapses even if the market moved. You can be right about direction and still lose money if IV crush eats your premium.

When to use

• Just before events when you expect a big move but don't know direction
• After prolonged consolidation before a breakout
• Never right before expiry. Theta destroys both legs rapidly

Takeaway. Long straddle profits from large moves in either direction. Buy both call and put at the same strike. The enemy is time decay (theta) and IV crush after events, time it carefully.