Options Blueprint
Straddles & strangles
Betting on a big move in either direction, and the volatility crush.
Long straddle
Goal Profit from a big move in either direction. You don’t care which way, only that it’s large.
Setup: Buy the XYZ $50 call ($2.50) and the $50 put ($2.50). Cost = $5.00 ($500). Results are shown at expiration, per 100-share contract, ignoring fees, dividends and taxes.
| At expiration | Per share | Per contract (×100) |
|---|---|---|
| Max gain | Unlimited on the upside; on the downside $50 − $5.00 = $45.00 (if XYZ goes to $0) | Unlimited / +$4,500 |
| Max loss | $5.00 (if XYZ is exactly $50 at expiration) | −$500 |
| Breakevens | $45.00 and $55.00 |
Long strangle
Goal The same idea as a straddle, cheaper, but it needs an even bigger move.
Setup: Buy the XYZ $55 call ($1.00) and the $45 put ($1.00). Cost = $2.00 ($200). Results are shown at expiration, per 100-share contract, ignoring fees, dividends and taxes.
| At expiration | Per share | Per contract (×100) |
|---|---|---|
| Max gain | Unlimited on the upside; on the downside $45 − $2.00 = $43.00 (if XYZ goes to $0) | Unlimited / +$4,300 |
| Max loss | $2.00 (XYZ anywhere from $45 to $55) | −$200 |
| Breakevens | $45 − $2.00 = $43.00 and $55 + $2.00 = $57.00 |
The short versions: shown as a warning
- Short straddle (sell both $50s for $500): max gain $500, breakevens $45 and $55. Losses are unlimited on the upside and up to $4,500 on the downside.
- Short strangle (sell the $55 call and the $45 put for $200): max gain $200, breakevens $43 and $57. Losses are unlimited on the upside and up to $4,300 on the downside.
These generally need a broker’s highest approval level. GRIP explains them so you know how they work, not as an “income idea.”
Key risks
- For buyers: volatility crush. Options are often expensive before earnings and lose value right after, even if the stock moves.
- For buyers: time decay on two options at once.
- For sellers: unlimited loss, gap risk and early assignment.
What can go wrong: right about the move, still lost
You buy the $500 straddle before an earnings report. XYZ moves to $53, a 6% move. At expiration the call is worth $3.00 and the put $0, so you lose ($3.00 − $5.00) × 100 = −$200. The move was real, just not bigger than the $5.00 you paid for the two options.
Who tends to study them
Advanced learners, mainly to understand how an “expected move” and implied volatility are priced into options.
Related glossary terms
Related Options Blueprint topic
- Straddles & Strangles: Betting on a Big Move
We’ll cover these topics in the future. See all Options Blueprint topics.
Important: please read
Educational only. Options Blueprint is general financial education. It is not financial, investment, tax or legal advice, and it is not a recommendation to buy or sell any security or to use any strategy. Nothing here is personalized to you, and viewing it doesn’t create an advisory relationship.
Options are not suitable for everyone. Options are complex and carry significant risk. They can lose money quickly, including the full amount you paid. Some strategies can lose more than the premium received or paid, and some (such as selling uncovered calls) have unlimited potential losses. Assignment can happen at any time before expiration on most stock and ETF options, and prices can gap sharply on news.
Hypothetical examples only. “Stock XYZ” and all prices, premiums and results on this page are made up for illustration. They ignore commissions, fees, bid/ask spreads, dividends, interest, margin requirements and taxes, all of which affect real results. No real tickers are used, and nothing here is a trade recommendation.
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