A long straddle is where you buy both a call and a put at the same strike price in the same expiration month.
The Max Loss is limited to the total premium paid for the call and put options.
The Max Gain is uncapped as the market moves in either direction.
When to use: When you are bullish on volatility but are unsure of market direction.
A long straddle is an excellent strategy to use when you think the market is going to move but don't know which way. A long straddle is like placing an each-way bet on price action: you make money if the market goes up or down.
But, the market must move enough in either direction to cover the cost of buying both options.
Buying straddles is best when implied volatility is low or you expect the market to make a substantial move before the expiration date - for example, before an earnings announcement.