An options strategy called a long straddle is where a trader purchases both a long call and a long put for the same underlying asset that has the same expiration date and strike price.
In this strategy, the strike price is (ATM) at-the-money or as close as possible. Calls will benefit from the upward move in the share price and the puts will benefit from a downward move in the share price.
Small moves in the stocks share price will cancel each other out.
The goal of a long straddle is to benefit from a strong move in either direction, usually from a newsworthy event, which is what makes this an effective strategy during earnings season.
Things To Remember
Big and unpredictable moves is the key to a successful long straddle.
You will be buying both a long call and a long put.