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THE OPTIONS COURSE- SHORT STRADDLE STRATEGY

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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 underlying 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 options) and unlimited risk. There is a significant probability of profit making 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 range, which results in a decrease i…