Short Straddle

What is a 'Short Straddle'

A short straddle is 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.

RELATED TERMS
  1. Covered Straddle

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

    An options strategy in which the investor holds a position in ...
  3. Long Straddle

    A strategy of trading options whereby the trader will purchase ...
  4. Bear Call Spread

    A type of options strategy used when a decline in the price of ...
  5. Bull Put Spread

    A type of options strategy that is used when the investor expects ...
  6. Covered Combination

    An option strategy that involves the simultaneous sale of an ...
Related Articles
  1. Options & Futures

    Straddle Strategy A Simple Approach To Market Neutral

    Being both short and long has advantages. Find out how to straddle a position to your advantage.
  2. Options & Futures

    Profit On Any Price Change With Long Straddles

    In this strategy, traders cash in when the underlying security rises - and when it falls.
  3. Options & Futures

    The Long Straddle And Price Consolidation

    With options, the direction of a stock's next major move becomes less important than its magnitude.
  4. Options & Futures

    Profit From Earnings Surprises With Straddles And Strangles

    These option strategies allow traders to play on earnings announcements without taking a side.
  5. Options & Futures

    4 Options Strategies To Know

    Here is a quick introduction to four options strategies that traders should know.
  6. Options & Futures

    How To Profit From Volatility

    We explain four key strategies to profit fom volatility in markets.
  7. Fundamental Analysis

    4 Popular Options Strategies for 2016

    Learn how long straddles, long strangles and vertical debit spreads can help you profit from the volatility that stock analysts expect for 2016.
  8. Options & Futures

    Options Strategies That Profit From Rite Aid's Volatility

    Learn why options strategies such as the long straddle and the long strangle enable investors to make big money with Rite Aid and other volatile stocks.
  9. Options & Futures

    How Are Futures & Options Taxed?

    We present a basic introduction to the US tax processes of futures and options.
  10. Investing Basics

    Strategies for Trading Volatility With Options (NFLX)

    These five strategies are used by traders to capitalize on stocks or securities that exhibit high volatility.
RELATED FAQS
  1. When is an options straddle deep in the money?

    Learn about options straddle positions, the moneyness of straddles and when a straddle position is considered to be deep ... Read Answer >>
  2. Under what circumstances should I pursue a straddle?

    Learn what a straddle is, how a straddle position is created, when you should pursue a long straddle strategy and when to ... Read Answer >>
  3. What kinds of financial instruments can I use a straddle for?

    Learn about options and straddles; discover some examples of optionable assets and how a straddle is used for financial instruments. Read Answer >>
  4. What options strategies are best suited for investing in the retail sector?

    Learn how savvy investors employ options strategies such as the long straddle and long strangle to profit from the volatile ... Read Answer >>
  5. What option strategies can I use to earn additional income when investing in the ...

    Learn about a couple of good options strategies that traders can use to enhance investing profitability when investing in ... Read Answer >>
  6. What options strategies are best suited for investing in the drugs sector?

    Learn how the covered call strategy works well with the pharmaceuticals segment of the drugs sector and how the long straddle ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center