What is a straddle? In the context of trading it is an option strategy where you buy a put and a call on an at the money option. For instance if you have a commodity at $20 you would buy some $20 calls and $20 puts. Why would you do this? Well it is a volatility trade that you place when you are expecting a lot of volatility one way or the other.
For instance in front of a central bank announcement you might do some fixed income option or currency option trades. This way no matter what the bank says you can make money on the direction of the subsequent move. The main risk is that the move is not big enough to pay for the put and the call.
A global macro trader will put these on when they see a big move coming but are unsure of the direction. Typically you will want to buy a lot of time along with the options to that you are not fighting time value so much. For instance by buying a 1 year option you will pay a bit more due to the time but now you have an entire year for the index to trade to a profitable exit.
When done right you an generate very consistent returns by trading straddles and will be long volatility. That means that you will be positioned to profit from any huge calamity.
