Straddles & strangles
Pure volatility bets — profit from a big move in either direction.
Straddles and strangles are volatility trades: they buy both a call and a put, so direction does not matter. A straddle uses the same at-the-money strike for both; a strangle uses out-of-the-money strikes, which costs less but needs a bigger move to pay off.
The straddle
A long straddle buys the ATM call and the ATM put, same strike and expiry. Direction does not matter — only magnitude. You profit if the stock makes a big move either way, enough to cover both premiums.
The strangle
A strangle is the cheaper cousin: an OTM call and an OTM put instead of ATM. Lower cost, wider breakevens — it needs an even bigger move, but risks less premium.
When to use them
Best used into events — earnings, FOMC, CPI — when you believe the real move will exceed the expected move the market has priced in. If you are right about the magnitude, direction takes care of itself.