Volatility at rock bottom: is a straddle the right move?

Markets often fall into a familiar seasonal pattern. As summer advances, trading volumes thin out, implied volatility fades, and investors drift into a sense of calm. Yet history shows that this period of tranquility rarely lasts. September and October have traditionally been months of renewed turbulence, often catching complacent investors off guard.
With implied volatility currently trading at depressed levels, option premiums are effectively “on sale.” This creates an attractive window for strategies that do not rely on predicting direction but instead position for the return of volatility. Chief among them is the straddle.

What exactly is a straddle?

A straddle is one of the simplest volatility strategies in options markets. It involves buying both a call and a put option with the same strike price and expiration date. The payoff structure is straightforward:

• If the underlying asset rises sharply, the call option gains.
  
• If the underlying falls, the put option benefits.
  
• If the market stagnates, the loss is limited to the combined premium.
  

This makes the straddle an efficient way of “buying volatility.” The key appeal is that it does not require choosing a direction, only anticipating that the market will eventually move.

The calm before the storm

History provides a strong case for seasonality in volatility. Since 1990, the VIX has tended to bottom in June and July before rebounding in September and peaking in October.

The year 2025 has so far mirrored this cycle. After a turbulent spring, summer brought an unusually long stretch of calm. By July, implied volatility had retreated to some of the lowest comfort levels in years. But if history is any guide, such stability is more a pause than a new equilibrium.

Foreign exchange markets show a similar pattern. The CVOL G5 FX index, tracking implied volatility on Euro, Pound, Yen, Australian Dollar, and Canadian Dollar futures, often displays sharp bursts of activity around macro or geopolitical shocks, followed by prolonged lulls. The current quiet looks very much like another such lull.

Why low IV matters

Implied volatility is the primary input in option pricing. When IV is low, option premiums fall; when IV rises, those same contracts become far more expensive. This makes timing important.

An August straddle is usually cheaper than one initiated in September. Buying optional exposure now means paying a “discounted” premium while retaining the potential to benefit from a rebound in volatility during the fall.

No need for directional bets

One of the main attractions of the straddle is that it removes the need to guess direction.

For example, an investor might think: “I am unsure whether the euro will rise or fall against the dollar, but I doubt that the summer calm will last.” In such a scenario, a straddle is more appropriate than a directional trade. It captures volatility regardless of the outcome and provides insurance against unexpected moves.

FX as a natural playground

Equity markets tend to see volatility spikes alongside price declines, but in FX, volatility is far more symmetric. Currency pairs often experience sharp swings in either direction, sometimes triggered by small catalysts such as a central banker’s remark or a surprise data print.

Let’s take the Euro FX contract, December expiry. The price has remained close to 1.175 throughout the summer, but several catalysts could easily break the range in the fall: diverging central bank policies, U.S. protectionist measures, or geopolitical events. Any of these could quickly shift the balance between currencies and force institutional rebalancing.

Because FX markets often move from extended ranges to sudden breakouts, they provide fertile ground for straddle strategies. The investor is not required to predict the breakout direction, only to position for its likelihood.

Another important consideration: listed FX options, such as those traded on CME, generally offer more transparency, standardization, and often lower costs compared with over-the-counter (OTC) FX options. Exchange-traded contracts provide clearer pricing and robust clearing, which makes them particularly well-suited for volatility strategies where premium efficiency matters.

Lessons from seasonality

Volatility is cyclical. Calm phases almost always give way to periods of agitation, sometimes even panic. Over the past 35 years, September has consistently marked a turning point, as investors return from summer breaks and refocus on economic data, central bank policy, and geopolitical events.

The summer of 2025 is no exception. Option premiums are unusually cheap, reflecting a market that assumes the calm will last. But history suggests otherwise. For those who believe turbulence will return, strategies like the straddle offer a simple and cost-efficient way to prepare.

Final thoughts

Complacency is one of the market’s most dangerous traps. While quiet markets encourage investors to lower their guard, volatility rarely stays low for long. With option premiums currently discounted, the coming weeks present an attractive window to position for a return of market movement.

By emphasizing magnitude over direction and by favoring listed options for their transparency and efficiency, the straddle remains one of the most compelling ways to approach the seasonal shift.

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When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: tradingview.com/cme/.
This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.

General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.