What Is a Straddle Options Strategy?

The straddle options strategy is a way for traders to take advantage of changes in market volatility. Buying a straddle can profit from a swing in the underlying security price, but it doesn’t matter whether it goes up or down. Conversely, selling a straddle will profit when the underlying security stays near the same price until the options expire.

Read on to learn more about the straddle options strategy and when it works best.

Loading paragraph...

An infographic comparing puts versus calls in options trading, and the risks associated with trading options. — Image source: The Motley Fool

Loading image...

Loading paragraph...

Strike Price

A strike price is the price in an options contract at which the underlying asset can be bought or sold.

To protect against a decline in the underlying security’s price on a straddle, a seller could also buy a put with a strike price below the strike price of the straddle. That way, if the price falls significantly, they’ll be assigned on the short put at the strike price, but they’ll be able to sell the underlying security with the put contract they bought as a hedge.

Related investing topics

Loading paragraph...

Investing in Iron Stocks

Iron is essential across industries such as steelmaking. Is it strong enough for your portfolio?

How to Research Stocks

Good research can help investors find the best companies to invest in.

How Bonds Work & How to Invest in Them

Bonds are often considered a "safe" investment, but are they right for you?

Futures vs. Options: What's the Difference?

Betting on the future of a stock or commodity can take many forms.

Loading hub_pages...

Loading paragraph...

About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

TMFnCaffeine

@admlvy

The Motley Fool has a disclosure policy.