What is a long straddle?
A Long Straddle is a combination of buying a Call and buying a Put on the same underlying security, both with the same strike price and expiration. Together, they produce a position that should profit if the stock makes a big move either up or down. Typically, investors buy the straddle because they predict a big price move and/or a great deal of volatility in the foreseeable future. For example, the investor might be expecting an important court ruling in the next quarter, the outcome of which will be either very good news or very bad news for the stock. However, since the straddle involves two premiums and two commission charges, for the position to be profitable, the move would need to be large enough to cover both premiums and commissions. To learn more about straddles or other strategies, you might visit our Strategy Screener.
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