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.

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RELATED FAQS
  1. How risky is a straddle?

    Learn how options traders use long and short straddles to potentially profit from a market regardless of the direction of ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. What options strategies are best suited for investing in the telecommunications sector?

    Learn why the long straddle option strategy is the best method in an investor's arsenal to capitalize on the volatile nature ... Read Answer >>
  5. 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 >>
  6. What's the difference between a straddle and a strangle?

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