straddle

Definition

The purchase or sale of an equal number of puts and calls, with the same strike price and expiration dates. A straddle provides the opportunity to profit from a prediction about the future volatility of the market. Long straddles are used to profit from high volatility. Long straddles can be effective when an investor is confident that a stock price will change dramatically, but cannot predict the direction of the move. Short straddles represent the opposite prediction, that a stock price will not change.

Use straddle in a sentence

You had to straddle it, or you might end up falling off, which was not good and kind of hurt.

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You may feel like you have to straddle two ideas but will end up needing to choose one at some point.

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When my hedge fund manager foresaw that the stock market was going to go heavily up and down in the next few months, he bought both puts and calls and did a straddle trade on the market.

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