Long Straddle Strategy
- Rohit More
- Jun 30
- 6 min read
A Strategy for Traders Who Want to Trade Volatility
Among all options strategies, the long straddle stands out for being simple, powerful, and offering a good chance to make profits. Many traders, whether professional or not, use this method to capitalise on significant price fluctuations, whether up or down.
When dealing with news events, earnings, or breakouts, the long straddle strategy is a great choice, as it does not depend on the direction of the market.
What is the meaning of Long Straddle in options trading?
First, we need to answer the main question:
What is the meaning of a long straddle in options?
A long straddle happens when you buy a call and put option on the same asset, both with the same strike price and expiry date. As a result, the position gets benefits from big swings in the asset’s price, in any direction.
Basically, it works this way:
When the price goes up a lot, the call option will earn you a profit.
When the price drops suddenly, the value of the put option increases.
When the price stays the same, both options will lose value because of theta.
Therefore, it is a strategy that pays attention to volatility. Traders do not predict the direction of the market, but how much it changes.
Why Do Traders Prefer the Long Straddle Strategy?
When traders expect certain market movements, the long straddle strategy becomes very attractive.
A noticeable change in the price.
However, it is unclear which direction the stock will move in.
To make sure we are not biased in our conclusions.
Key reasons traders like to use a long straddle strategy
Announcements about earnings or important events at the company that might affect the stock price.
Union Budget, RBI Policy, the outcome of elections, or other big economic events.
The appearance of breakouts at important technical points, for example, symmetrical triangles or squeeze zones.
When implied volatility is high, it means the movement in the market matters more than guessing its direction.
With this strategy, both retail traders and institutions can approach uncertain markets in a planned way.
Long Straddle Strategy for NIFTY
The NIFTY long straddle strategy is widely used by people trading in Indian derivatives. Here’s why:
Since NIFTY is liquid, it is easy to buy and sell.
Because straddles can be used weekly, they are useful for traders.
It responds to major economic and international events, sometimes with big changes within the day.
Example:
For this example, we will say that NIFTY is trading at 25,000.
You buy:
A 25,000 Call Option is available for ₹120
A 25,000 Put Option at a price of ₹130
The total premium for the policy is ₹250.
This is the highest amount you could lose.
Now, we will focus on profit.
The index has to close above 25,250 or below 24,750 by expiry.
Profit is the difference between the profit made above the break-even point and the total premium paid.
Strong movement in NIFTY could result in unlimited profits from either direction.
When Should You Use a Long Straddle in the Indian Stock Market
It is very important to time the deployment of a long straddle correctly.
What are the best conditions for using a long straddle in the Indian stock market?
1. Before major events in history
Before earnings reports, changes in budgets, or new policies are announced, use the long straddle since volatility is likely to increase afterwards.
2. Easy to Enter
Buy when the IV is low and is expected to increase. When IV goes up, it makes the option premiums higher, which helps your long straddle.
3. Squeeze Zones
When the price of stocks is moving in a narrow band, it usually means a breakout is coming. Enter the long straddle right before the breakout takes place.
4. Thursdays or Tuesdays are the days that Weekly Expiries expire.
The start of a new expiry cycle usually makes premiums less expensive, giving a better risk-reward ratio.
Market-Neutral Options Strategy: The Main Strength
The long straddle is the best example of a market-neutral options strategy. It’s enough to expect that the price will change, without worrying about whether it will rise or fall.
This becomes very useful when:
You aim to reduce risks in your portfolio without affecting the existing positions.
You think that volatility is not accurately valued at the current time.
You are getting ready for events that are not easy to predict.
While other neutral strategies have a fixed profit limit, the long straddle can make a lot of profit during sudden market changes.
Which Stocks Are Ideal for a Long Straddle on Today Market?
Many people in the trading world ask:
What stocks are good to use in a long straddle strategy today?
Still, the best candidates tend to have the following traits:
A lot of options are available to trade in their chains.
News or actions from the company that are about to happen.
Many big moves have taken place after the event.
Popular stocks that many people prefer:
Reliance Industries tends to experience big changes in price when earnings or Jio news are announced.
Tata Motors responds to EV news from around the world and updates from JLR.
HDFC Bank / ICICI Bank – follow the guidelines set by the RBI and respond to changes in the economy.
Infosys / TCS – the best time to trade them is after quarterly results, as their share price can change a lot.
Adani Group stocks are famous for their unpredictable behaviour and being affected by regulations.
It’s important to review the IV percentile, open interest, and how the stock’s earnings have moved before choosing a stock for a long straddle.
Advantages and Disadvantages of Long Straddle Strategy
Advantages:
Profits can increase or decrease without limits.
Neutral view — there is no need to guess which way the trend is going.
May gain from increased volatility that happens after an event.
Setting up is easy since there are only two option legs.
Disadvantages:
You have to pay a high initial amount (premium) for health insurance.
The business needs to move a lot to be successful.
If the price stays within a range for a long time, it will lose value.
They do not perform well when the market is stable.
Managing a Long Straddle: Keeping Risks in Check and Planning Exits
Just like other option strategies, the long straddle requires you to be disciplined.
Rules for working:
After you deploy, if no big change occurs within a few days, you may want to exit.
Should one leg of your spread become in the money and the other leg decrease in value, you can move into a strangle or vertical spread.
When the first part of your trade makes a strong profit, book it and let the other one remain open with a stop-loss.
Watch for changes in Vega and IV: Even a little price movement can still hurt both legs when volatility falls fast.
Risk management must be done, as it is crucial for the long straddle to succeed.
An example of a Long Straddle is when the market moves a lot on Budget Day.
Let’s look at a true example from the Indian markets.
The day when the Union Budget is announced
The NIFTY index stood at 24,850 before the announcement was made.
Trader buys:
24,850 Call can be purchased for ₹140.
24,850 Put is equivalent to ₹160.
The total amount of premium paid is ₹300.
Within two hours after the budget, the NIFTY drops to 24,300.
The price of a put option rises to ₹550, whereas the call option’s price falls to ₹5.
Net value is ₹555, which means you will gain ₹255 per lot or ₹19,125 for 1 lot (75 quantity).
With the small ₹300 cost, quick changes in the market can make the trade very profitable.
Is a long straddle a good investment?
Using the long straddle strategy is one of the best options a trader can have in their arsenal. It does not require you to know the direction of the market — only to notice volatility, timing, and the latest news.
If used before important market events or when the market is consolidating, the long straddle can bring you good profits, especially in NIFTY or high-volatility stocks.
But remember:
Time decay is your worst enemy.
If you pay more for your premiums than necessary, it will be a loss for you.
Even when the direction is correct, volatility crashes can still lead to losses.
If you’re still curious about why traders use a long straddle strategy, it’s because they want to benefit from the unpredictable and make a profit when things are chaotic.
