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OPTION TrAdINg STrATegIeS
Strategy 7: Long Straddle (Long Call + Long put)
example. Buy August $1,200 gold futures call at a premium of $38.80/oz ($3,880) and simultane-
ously buy an August $1,200 gold futures put at a premium of $38.70/oz ($3,870). (See Table 35.7 
and Figure 35.7.)
Comment. The long straddle position is a volatility bet. The buyer of a straddle does not have 
any opinion regarding the probable price direction; he merely believes that option premiums 
are underpriced relative to the potential market volatility. Andrew T obias once offered a some -
what more cynical perspective of this type of trade
1: “Indeed, if you haven’t any idea of which 
way the [market] is headed but feel it is headed someplace, you can buy both a put and a call 
on it. That’s called a straddle and involves enough commissions to keep your broker smiling 
all week.”
As can be seen in Figure 35.7, the long straddle position will be unprofitable for a wide price 
range centered at the current price. Since this region represents the range of the most probable price 
outcomes, the long straddle position has a large probability of loss. In return for accepting a large 
probability of loss, the buyer of a straddle enjoys unlimited profit potential in the event of either a 
large price rise or a large price decline. The maximum loss on a long straddle position is equal to the 
total premium paid for both the long call and long put and will only be experienced if the expiration 
price is equal to the futures price at the time the options were purchased. (Implicit assumption: both 
the call and put are at-the-money options.)
tabLe 35.7 profit/Loss Calculations: Long Straddle (Long Call + Long put)
(1) (2) (3) (4) (5) (6) (7)
Futures price 
at expiration 
($/oz)
premium of august 
$1,200 Call at 
Initiation ($/oz)
premium of august 
$1,200 put at 
Initiation ($/oz)
$ amount of 
total premium 
paid
Call Value at 
expiration
put Value at 
expiration
profit/Loss on 
position  
[(5) + (6) – (4)]
1,000 38.8 38.7 $7,750 $0 $20,000 $12,250
1,050 38.8 38.7 $7,750 $0 $15,000 $7,250
1,100 38.8 38.7 $7,750 $0 $10,000 $2,250
1,150 38.8 38.7 $7,750 $0 $5,000 –$2,750
1,200 38.8 38.7 $7,750 $0 $0 –$7,750
1,250 38.8 38.7 $7,750 $5,000 $0 –$2,750
1,300 38.8 38.7 $7,750 $10,000 $0 $2,250
1,350 38.8 38.7 $7,750 $15,000 $0 $7,250
1,400 38.8 38.7 $7,750 $20,000 $0 $12,250
1 Andrew T obias, Getting By on $100,000 a Year (and Other Sad T ales) (New Y ork, NY: Simon & Schuster, 1980).