Long Straddle Calculator

A long straddle buys a call and a put at the same strike and expiry, usually at the current price. It profits from a large move in either direction and loses if the stock stays near the strike. The cost is high because both options are at the money, and that cost, the sum of the two premiums, is also the distance the stock must move by expiry to break even.

When it is used

Straddles are bought ahead of events whose direction is uncertain but whose size is expected to be large: earnings, trial results, decisions. They are also bought when a trader expects implied volatility itself to rise, since both legs gain from that. The hard part is that the market prices the same expectation into the options, so the move has to beat what is already implied.

How it makes and loses money

A big move and rising implied volatility are what pay. Standing still is the loss, and it accrues every day through time decay on two options at once. The fall in implied volatility after an event, even when the stock moved, is the specific way straddles disappoint.

What to check in the grid

Follow the row at the current price across dates to see the daily cost of waiting. Then use the IV change slider to lower volatility after the event date: the columns after it show what a post-event volatility collapse does to a straddle that was right about the move but not by enough.