Knowledge Bite
July 2026
After completing the e-learning content "Knowledge Bite: An Introduction to Trading Volatility" test what you've learned by completing our quick quiz - just click here to begin or scan the QR code.
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Beyond direction: trading volatility
Payoff chart
The chart below shows us the payoff for buying the 74.00 straddle.
The horizontal axis shows a range of prices for the underlying Future, while the vertical axis shows profit and loss — labelled here as "payoff." The zero P&L line runs across the middle of the chart. For now, you can disregard the bold black vertical line and the blue vertical line beside it.
The green V-shape is the key. It tells us that if the Futures price is above or below 74.00 at Option expiry, the loss will be less than the maximum — because either the Call or the Put will have picked up some exercisable value. The bottom of the V marks the worst-case scenario: a maximum loss of 849 ticks (the full premium paid for the straddle). That loss only occurs if the Futures price sits at exactly 74.00 at expiry, at which point neither the Call nor the Put carries any exercisable value, and the entire premium has eroded to zero.
The green V, in other words, is the expiry payoff profile for a long position of one lot of the 74.00 straddle. If the Futures price moves far enough in either direction, the exercisable value of the Call or the Put will eventually recover the full cost of the straddle. The prices at which that happens are called the break-evens — the two points where the green V crosses the zero P&L line. For this straddle, those levels are 65.51 on the downside and 82.49 on the upside.
But how are those levels calculated? To learn more click here to access the e-learning content.
In 10 minutes, you'll understand what we mean by trading volatility, and how to use the straddle to build a position that profits from volatility itself, regardless of market direction.
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