Short Straddle


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.

BREAKING DOWN '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.

  1. Covered Straddle

    An option strategy that involves writing the same number of puts ...
  2. Call

    1. The period of time between the opening and closing of some ...
  3. Naked Call

    An options strategy in which an investor writes (sells) call ...
  4. Naked Option

    A trading position where the seller of an option contract does ...
  5. Naked Put

    A put option whose writer does not have a short position in the ...
  6. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
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  1. Under what circumstances should I pursue a straddle?

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  3. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What are common delta hedging strategies?

    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
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