Long Straddle – BUY CE & BUY PE at the money - same strike

price & same expiry

A long straddle is a combination of buying a call and buying a put, at the money or as close as possible ,
both with the same strike price and expiration. Together, they produce a position that should profit if
the stock makes a big move either up or down.

CE Buy benefit from an upward move .

PE buy benefit from a downward move.
both of these components cancel out small moves in either direction

Typically, investors buy the straddle because they predict a big price move in the stock price, in either
direction, during the life of the options.  and/or a great deal of volatility in the near future. 

Ex-

Buy XYZ 60 CE
Buy XYZ 60 PE

Profit/Loss

Maximum Gain : Unlimited

Maximum Loss : Premium Paid

A long straddle assumes that the call and put options both have the same strike price.

If at expiration the stock's price is exactly at-the-money, both options will expire worthless, and the
entire premium paid to put on the position will be lost

The profit at expiration will be the difference between the stock's price and the strike price, less the
premium paid for both options. 
straddle requires premiums to be paid on two types of options instead of one, the combined expense
sets a relatively high hurdle for the strategy to break even.

Breakeven

This strategy breaks even if, at expiration, the stock price is either above or below the strike price by the
amount of premium paid.  At either of those levels, one option's intrinsic value will equal the premium
paid for both options while the other option will be expiring worthless

Upside breakeven = strike + combined premiums paid

Downside breakeven = strike - combined premiums paid

Volatility

Even if the stock held steady, if there were a quick rise in implied volatility, the value of both options
would tend to rise. Conceivably that could allow the investor to close out the straddle for a profit well
before expiration.

Conversely, if implied volatility declines, so would both options' resale values

Time Decay

negative effect. Because this strategy consists of being long a call and a put, both of them at-the-money
at least at the beginning, every day that passes without a move in the stock's price will cause the total
premium of this position to suffer a significant erosion of value. What's more, the rate of time decay can
be expected to accelerate toward the last weeks and days of the strategy, all other things being equal.

Expiration Risk

If the options are held into expiration, one of them may be subject to automatic exercise.
 exercise happens if, and only if, the option's intrinsic value exceeds an acceptable minimum.

Comments

race between time decay and volatility.

The passage of time erodes the position's value a little bit every day, often at an accelerating rate. The
hoped-for volatility increase might come at any moment or might never occur at all.
Usage

use a long straddle ahead of a news report, such as an earnings release, budget
, the passage of a law, or the result of an election etc.

capture the anticipated rise in implied volatility.

run this strategy in the time period leading up to the event, say three weeks or
more, but take profit a day or two before the event actually occurs. This method
attempts to profit from the increasing demand for the options themselves, which
increases the implied volatility component of the options themselves.

increasing implied volatility increase the price of all options (puts and calls) at all
strike prices.

selecting options with expiration dates that are unlikely to be significantly affected
by time decay ie low theta.