Short Straddle

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DEFINITION of 'Short Straddle'

An options strategy carried out by holding a short position in both a call and a put that have the same strike price and expiration date. The maximum profit is the amount of premium collected by writing the options.

INVESTOPEDIA EXPLAINS 'Short Straddle'

If a trader writes a straddle with a strike price of $25 and the price of the stock jumps up to $50, the trader would be obligated to sell the stock for $25. If the investor did not hold the underlying stock, he or she would be forced to buy it on the market for $50 and sell it for $25.

The short straddle is a risky strategy an investor uses when he or she believes that a stock's price will not move up or down significantly. Because of its riskiness, the short straddle should be employed only by advanced traders due to the unlimited amount of risk associated with a very large move up or down.

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    A straddle is an option strategy composed by an investor buying, or selling, a call option and a put option with the same ... Read Full Answer >>
  2. How can I use an out-of-the-money put time spread for downside risk?

    Long Put Calendar Spread An out-of-the-money put time spread can hedge downside risk by selling an out-of-the-money put ... Read Full Answer >>
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    As of 2015, no leveraged exchange-traded funds, or ETFs, track the automotive sector. However, a non-leveraged ETF tracks ... Read Full Answer >>
  4. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
  5. What happens if a software glitch fails to execute the strike price I set?

    If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>
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