Long Straddle Payoff & Breakeven

🔑 Position summary — Long straddle

⚠️ Straddles have TWO breakevens — they are one of the only options strategies with multiple breakevens. To find both quickly:

1. Add up the combined premiums.
2. Add the combined premiums to the strike price (upside breakeven).
3. Subtract the combined premiums from the strike price (downside breakeven).

Concept

• When you can’t confidently predict whether the market will go up or down, but you do expect volatility, a long straddle can make sense. This strategy can profit if the stock price moves significantly in either direction.

Definitions

Example position:

Long 1 ABC Jan 60 call Long 1 ABC Jan 60 put

• By buying both, the investor is betting on market volatility rather than direction.
• If the market price rises above the call’s strike (“call up”), the investor can exercise the call — buy at the strike, sell at the higher market price. The investor profits if that gain is greater than the combined premiums paid for both options.
• If the market price falls below the put’s strike (“put down”), the investor can exercise the put — buy at the lower market price, sell at the higher strike. Again, the investor profits only if the gain is greater than the combined premiums.
• ⚠️ A long straddle can profit in either a bull or bear market, but it has an important cost: you pay two premiums. The winning option must gain enough intrinsic value to cover both premiums. If the stock stays near the shared strike price, the investor can lose most or all of the combined premiums.

Worked examples — Long 1 ABC Jan 60 call at $4 + Long 1 ABC Jan 60 put at $5 (ABC at $60)

Market rises to $100

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price rises to $100?

Answer = $3,100 gain

Action	Result
Buy call	-$400
Buy put	-$500
Exercise call - buy shares	-$6,000
Sell shares	+$10,000
Total	+$3,100

At $100, the call is “in the money” (it has intrinsic value), and the put is “out of the money” (no intrinsic value). The put expires worthless, and the call is exercised, allowing the investor to buy ABC at $60 and sell at $100.

Intrinsic value on the call = $100 − $60 = $40 per share = $4,000 Combined premiums paid = $4 + $5 = $9 per share = $900 Net gain = $4,000 − $900 = $3,100

• Only one option finished in the money, but the move was large enough that the call’s intrinsic value more than covered the combined premium.
• 🔑 Long straddle maximum gain = unlimited. The further the market rises, the more intrinsic value the call option gains.

Market rises to $69 (upside breakeven)

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price rises to $69?

Answer = $0 (breakeven)

Action	Result
Buy call	-$400
Buy put	-$500
Exercise call - buy shares	-$6,000
Sell shares	+$6,900
Total	$0

At $69, the call is in the money and the put is out of the money. The call’s intrinsic value is $69 − $60 = $9 per share ($900 total), which exactly offsets the $900 combined premium.

• 🔑 Upside breakeven = strike price + combined premiums. In this example: $60 + $9 = $69.

Market rises to $62

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price rises to $62?

Answer = $700 loss

Action	Result
Buy call	-$400
Buy put	-$500
Exercise call - buy shares	-$6,000
Sell shares	+$6,200
Total	-$700

At $62, the call has $2 of intrinsic value ($200 total), but the combined premium was $900. The net result is a $700 loss.

• ⚠️ This is the key risk of a long straddle: not enough movement. The closer the stock stays to the shared strike price, the more likely the investor is to lose some or all of the combined premiums.

Market stays flat at $60 (maximum loss)

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price stays at $60?

Answer = $900 loss

Action	Result
Buy call	-$400
Buy put	-$500
Total	-$900

At $60, both options are “at the money,” so neither has intrinsic value. Both expire worthless, and the investor loses the combined premiums ($900).

• 🔑 This is the maximum loss for the long straddle. Long straddle maximum loss = combined premiums.

Market falls to $57

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price falls to $57?

Answer = $600 loss

Action	Result
Buy call	-$400
Buy put	-$500
Buy shares	-$5,700
Exercise put - sell shares	+$6,000
Total	-$600

At $57, the put is in the money by $3 ($300 total). That $300 intrinsic value doesn’t cover the $900 combined premium, so the investor still has a $600 loss.

• ⚠️ Again, limited price movement is the enemy of a long straddle.

Market falls to $51 (downside breakeven)

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price falls to $51?

Answer = $0 (breakeven)

Action	Result
Buy call	-$400
Buy put	-$500
Buy shares	-$5,100
Exercise put - sell shares	+$6,000
Total	$0

At $51, the put has $9 of intrinsic value ($900 total), which exactly offsets the $900 combined premium.

• 🔑 Downside breakeven = strike price − combined premiums. In this example: $60 − $9 = $51.
• In this example, the two breakevens are $51 and $69.

Market falls to $25

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. What is the gain or loss if ABC’s market price falls to $25?

Answer = $2,600 gain

Action	Result
Buy call	-$400
Buy put	-$500
Buy shares	-$2,500
Exercise put - sell shares	+$6,000
Total	+$2,600

At $25, the put is in the money by $35 ($3,500 total). After subtracting the $900 combined premium, the net gain is $2,600.

• Only one option finished in the money, but the move was large enough that the put’s intrinsic value more than covered the combined premium.

Payoff chart summary

Position again:

Long 1 ABC Jan 60 call @ $4 Long 1 ABC Jan 60 put @ $5

What the page says the chart shows:

• The horizontal axis represents the market price of ABC stock; the vertical axis represents overall gain or loss.
• The maximum loss occurs at the strike price ($60) and equals the combined premiums ($900).
• Above $60, the call gains intrinsic value; below $60, the put gains intrinsic value.
• The breakevens are $69 on the upside and $51 on the downside.
• If the market price rises above $69, the position becomes profitable and has unlimited upside potential.
• If the market price falls below $51, the position becomes profitable on the downside, with gain potential up to $5,100 (which would occur if the stock fell to $0).

Closing out at intrinsic value

• Closing out means trading the contracts (selling them) instead of exercising them or letting them expire.

Market falls to $45, contracts closed at intrinsic value

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. ABC’s market falls to $45 and the investor closes the contracts at intrinsic value. What is the gain or loss?

Answer = $600 gain

Action	Result
Buy call	-$400
Buy put	-$500
Close call	$0
Close put	+$1,500
Total	+$600

At $45, the put has $15 of intrinsic value and the call has $0. The investor closes both positions by selling the options:

Total paid in premiums = $9 per share ($900) Total received when closing = $15 per share ($1,500) Net gain = $1,500 − $900 = $600

• 🔑 Closing transactions reverse the opening transactions. Since the investor opened the straddle with two purchases, they close it with two sales.

Market rises to $66, contracts closed at intrinsic value

An investor goes long 1 ABC Jan 60 call at $4 and long 1 ABC Jan 60 put at $5 when ABC’s market price is $60. ABC’s market rises to $66 and the investor closes the contracts at intrinsic value. What is the gain or loss?

Answer = $300 loss

Action	Result
Buy call	-$400
Buy put	-$500
Close call	+$600
Close put	$0
Total	-$300

At $66, the call has $6 of intrinsic value and the put has $0. The investor closes both positions by selling the options:

Total paid in premiums = $9 per share ($900) Total received when closing = $6 per share ($600) Net loss = $600 − $900 = −$300

• As in the prior example, the investor closes the straddle with two sales because the straddle was opened with two purchases.

Suitability

• 📌 For suitability, long straddles should only be recommended to aggressive options traders if volatility is expected.
• ⚠️ Although the maximum loss is limited to the premiums, losses can add up quickly due to the short-term nature of options. The investor realizes a loss if volatility does not materialize before expiration (9 months or less for standard options).

Key points

Long straddles

• Long call & long put
  • Must be the same strike & expiration
• Market sentiment: volatility

Long straddle formulas

• Maximum gain = unlimited
• Maximum loss = combined premiums
• Breakevens = strike +/- combined premiums

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.