Short straddle
From Wikipedia, the free encyclopedia
The short straddle is a non-directional options trading strategy that involves simultaneously selling a put and a call of the same underlying security, strike price and expiration date. The profit is limited to the premiums of the put and call, but it has substantial risk if the underlying security either drops substantially below the strike price of the put, or soars above the strike price of the call. The break-even point at expiration occurs when the intrinsic value of the put or the call is equal to the sum of the premiums of the put and call. This strategy is called nondirectional because the short straddle profits when the underlying security changes little in price before the expiration of the straddle. The short straddle can also be classified as a credit spread because the sale of the short straddle results in a credit of the premiums of the put and call.
[edit] References
- McMillan, Lawrence G. (2002). Options as a Strategic Investment, 4th ed., New York : New York Institute of Finance. ISBN 0-7352-0197-8.
