What constitutes a long straddle strategy?

A long straddle strategy involves purchasing both a call option and a put option on the same underlying asset, and it is crucial that both options have the same strike price and expiration date. This strategy allows the investor to profit from significant price movement in either direction—upward or downward—since the call option benefits from rising prices while the put option gains value when prices fall.

This approach is typically employed when an investor expects high volatility but is uncertain about the direction of the price movement. The simultaneous purchase of the options creates a position that can lead to substantial gains if the market moves significantly away from the strike price.

In contrast, buying a call and a put with different strike prices would not qualify as a long straddle but rather as a different strategy known as a long strangle. Selling a call and a put instead constitutes a short straddle or short strangle, which focuses on benefiting from lower volatility and time decay. Lastly, buying two calls with different strike prices would also not represent a straddle, as it only involves call options and does not cover movements in both directions.