Long Straddles

This chapter focuses on long straddles, which consist of two legs, a long call and a long put with the same strike and from the same series. Buying a straddle involves buying both options simultaneously. The driver behind a long straddle is a view on volatility. Specifically, the view is that market volatility is currently too low and the options are under-priced. In practice, with other things being equal, most long straddles are either at-the-money or close-to-the-money. Such long straddles are close to delta neutral. A change in the underlying would have little impact upon the value of a long straddle. A rise in volatility would increase the value of a long straddle and the passage of time would erode the value of a long straddle. It is rare for speculators to buy straddles in practice because the straddles tend to be expensive and tend to erode quickly.