Sometimes the market sets up like a suspense thriller — you know something dramatic is about to unfold, but you’re not sure if the hero’s going to win… or the villain. That’s where the long straddle becomes your weapon of choice. In this blog, we will decode how to create a long straddle strategy.

It’s one of those approaches that says, “I don’t need to guess the direction, just show me a big move.”

What is a Long Straddle in Trading?

A long straddle involves buying:

• One at-the-money Call option (to profit if the price jumps).
• One at-the-money Put option (to profit if the price drops).

Both have the same strike price and identical expiry date.

Why do traders use it? Because when the market swings hard in either direction, the winning option can more than make up for the losing one, ideally leaving you with a net profit.

Think of it like betting on both possible winners in a race; you don’t care which one wins, as long as the finish is explosive.

When to Use a Long Straddle Strategy

Long straddles work best when the market’s gearing up for action — not when it’s moving like a sleepy Monday. They’re most effective when:

• A major announcement is coming — This is the most common quarterly results trading strategy and is therefore used at the time of quarterly earnings, government budgets, central bank decisions, or merger news.
• Implied Volatility (IV) is relatively low — you get cheaper option premiums before the market heats up.
• A breakout is likely — price has been stuck in a tight range and could burst out.

Pro tip: If IV is already high, you could end up paying a lot for both options — and even a decent move may not be enough to beat the post-event “volatility crush.”

How to Set Up a Long Straddle for Options Trading

Here’s a practical walk-through so you can see how it works in numbers.

Step 1 — Choose Your Stock or Index

Pick something known to move sharply during news.
Example: Axis Bank before quarterly results.

Step 2 — Identify the ATM Strike Price

If the stock is trading at ₹950, the ATM strike is ₹950.

Step 3 — Buy the Call and the Put (Same Strike, Same Expiry)

• Buy 950 CE
• Buy 950 PE

Both should have the same expiry date — usually the nearest one if you’re targeting an upcoming event.

Step 4 — Calculate the Total Premium Paid

For example:

• 950 CE costs ₹9
• 950 PE costs ₹8.80

Total cost = ₹17.80 per share (₹1,780 per lot if lot size = 100).

Step 5 — Wait for the Move

If Axis Bank gaps up 5% after results, your call option jumps in value, covering the cost of the put.
If it gaps down 5%, the put option surges while the call loses value.

To trade a straddle with confidence, always practice backtesting option trading strategies before applying them directly in the live market.

Straddle Strategy Example

📊 Axis Bank Earnings – July 2023

• Bought 950 CE @ ₹9 + 950 PE @ ₹8.80 (₹17.80 total).
• Next day: stock opened at ₹1,000.
• Call value shot to ₹37, Put dropped to ₹1.50.
• Net = ₹38.50 → profit of ₹20.70 per share (~116% gain overnight).

Checklist Before Creating a Long Straddle

Before using the straddle strategy, remember that if the stock barely moves, both options lose value as time decay (theta) chips away daily.

That’s why long straddles are event-driven. Without a sharp move soon after entry, the trade can quickly become a losing bet.

Here is the quick checklist you must follow to avoid losses while using a straddle.

• Is there a significant event within days?
• Is IV low enough to make premiums affordable?
• Does the stock have a history of strong post-event moves?
• Are you prepared to lose the full premium if nothing happens?

Want to learn more about how to use this strategy like a pro? Then enroll in the option trading mentorship now. Here, you will get personalized guidance on the straddle strategy and further help you in polishing your trading skills.

Conclusion

A long straddle isn’t about predicting where the market will go — it’s about setting up so that any big move works for you.

When timed right, it feels like you saw the market twist before it happened. But if the move never comes, both sides lose value.

As with any options trade, keep your position size reasonable so that even a total loss won’t hurt your capital too much. The straddle can be a powerful tool — but it cuts both ways if mishandled.