Showing posts with the label short-straddle-payoff


THE OPTIONS COURSE SHORT STRADDLE STRATEGY A short straddle involves selling both a put and a call with identical strike  prices and expiration months. This strategy is useful should the underly ing futures remain fairly stable. It is attractive to the aggressive strategist  who is interested in selling large amounts of time premium in hopes of  collecting all or most of this premium as profit. In general, this is a neutral  strategy with limited profit potential (the total credit from the short op tions) and unlimited risk. There is a significant probability of profit mak ing but the risk can be very large, which is why I do not recommend  placing a short straddle. Short Straddle Mechanics Let’s imagine you are selling a straddle on XYZ Corp. and shares are trading  for $50 a share in December. The short March 50 call option is trading at  $2.50 and the short March 50 put option is trading at $2.50. You forecast that  XYZ is going to continue trading in a narrow