Why Is a Straddle Often Considered a Bet on Volatility?
A long straddle is a bet on volatility because the trader profits only if the underlying asset's price moves significantly, regardless of direction. The strategy has positive Vega exposure.
The buyer is essentially betting that the market's current implied volatility (priced into the premium) is underestimating the actual volatility that will occur (realized volatility).
Glossar
Long Straddle
Structure ⎊ This strategy involves the simultaneous purchase of an at-the-money call and an at-the-money put option on the same underlying crypto derivative.
Straddle
Strategy ⎊ A straddle is an options trading strategy involving the simultaneous purchase or sale of both a call option and a put option on the same underlying asset.
Bet on Volatility
Mechanism ⎊ A bet on volatility is fundamentally executed through non-directional options strategies, most commonly involving the simultaneous purchase or sale of both call and put options.