Definition of Straddle

Straddle is the simultaneous purchase or sale of a call and a put on the same security with the same strike price and expiration.

Applying "Straddle" to Securities Exams:

An option investor would purchase a straddle when they expect the stock price to be extremely volatile and to make a significant move in either direction. An investor who owns a straddle is neither bullish nor bearish. They are not concerned with whether the stock moves up or down in price so long as it moves significantly. Alternatively, an investor would sell a straddle when they expect low volatility.

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