straddle
noun
Straddle — an options strategy betting on significant price movement either way
Definition
The option to buy or sell a given stock (or stock index or commodity future) at a given price before a given date; consists of an equal number of put and call options
In depth
A straddle is the option to buy or sell a given stock, stock index, or commodity future at a given price, typically referring to a combined strategy involving both a call and a put option at the same strike price and expiration. The strategy profits from significant price movement in either direction, the trader essentially betting on volatility itself rather than a specific directional outcome.
Origin
The word descends from Old English stridan, to stride, the same root behind 'stride.' Its figurative financial use, betting on movement in either direction, draws on the literal image of straddling, standing with legs apart on either side of something, the trader similarly positioned on both sides of the market rather than committing to a single directional outcome.
Usage examples
"She placed a straddle ahead of the earnings announcement, anticipating a significant price swing regardless of whether the news proved positive or negative."
"The straddle's cost reflected the market's expectation of substantial volatility in the coming weeks."
"His straddle paid off handsomely when the stock moved sharply, though the direction itself had been impossible to predict in advance."
How to use it
Straddle is precise options trading vocabulary, particularly useful in writing about volatility-based strategies, where the trader's bet concerns the magnitude rather than the direction of expected price movement.
Related concepts
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