What does a straddle consist of?

A straddle consists of a call and a put that share the same strike price and expiration date. This strategy is employed by investors who anticipate a significant movement in the underlying asset's price but are uncertain about the direction of that movement. By holding both options, the investor can benefit from price volatility, as either option can become valuable if the stock price moves substantially—whether up or down.

In contrast, the other options do not accurately describe what constitutes a straddle. A combination of different strike prices would refer to a strangle, while a combination of foreign and domestic options does not relate to the straddle strategy at all. Lastly, a put option with a time-sensitive premium does not cover the essence of a straddle, which is specifically the pairing of a call and put option with the same parameters.