A straddle strategy in options trading is when an investor buys both a call and put option for the same underlying asset, strike price, and expiration date.
This strategy aims to profit from significant price movements in either direction. The trader believes the asset will increase or decrease dramatically but isn’t sure of the direction.
If the price increases significantly, the call option will generate profit; if the price drops significantly, the put option will be profitable. However, if the price doesn’t move much, both options can expire worthless, resulting in a loss of the premium paid to enter the position.