Straddle Scenarios — P&L at Expiry
Straddles profit from big moves (long) or low volatility (short) — the classic vol trade
Scenario 1 · Long Straddle — Big Move Wins
Large price move either direction covers premium — long vol profits
📈 Big move exceeds premium — max profit unlimited
Scenario 2 · Long Straddle — IV Crush Loses
Small move with IV crush: premium decays faster than move gains
📉 IV crush + no move = full premium loss
Scenario 3 · Short Straddle — Low Vol Wins
Price stays near strike: short collects theta, delta hedges are minimal
🏆 Small move = short straddle keeps premium
Scenario 4 · Short Straddle — Big Move Hurts
Large gap move blows past premium collected — unlimited loss potential
💥 Tail risk: short straddle loses beyond breakevens
Profit zone
Loss zone
Strike (K)