Why is buying a straddle "long volatility"?
Asked at Akuna, Optiver
A stock trades at . You buy the -strike call and the -strike put (same expiry), paying \6$ total premium.
Describe your P&L at expiry. Why is this position called "long volatility"? What are your risks as the stock moves before expiry?
Show a hint
Draw the payoff: what do you collect at expiry as a function of the final stock price ?
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.