Derivatives · Core
Straddle
A straddle is a call and a put at the same strike — a bet on a large move, long or short, without picking direction.
Definition
Long straddle = long call + long put, usually ATM. You need |move| > breakeven after premia, or a vol expansion. Short straddle earns theta and dies on a jump. It is a realized-vs-implied trade more than a ‘I don’t know’ shrug.
Why it matters
Events (FOMC, earnings) are straddle markets. The question is implied move vs your distribution, not yes/no on direction.
Case
A stock implied 12% into earnings and moved 4%. Long straddles paid for the story; shorts earned the crush. Direction was a footnote.
How to read it
Compare straddle price to your distribution and to the crush. A cheap straddle that is cheap because the event is priced as quiet may still be fair.
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