If you have ever wondered what is a short straddle option strategy, you are not alone. This strategy has been gaining popularity among traders and investors alike. It is a unique combination of two popular options strategies. The risk involved in this strategy is limited to the premium paid for the put and call contracts. In theory, the potential return is unlimited. However, it is important to remember that the price of the underlying security may move considerably from the strike price of the option.
In the short straddle option strategy, investors sell a call and a put with the same expiration date. This strategy results in a neutral position, and the premium collected acts as a buffer against stock movement. Generally, this strategy is profitable as long as the stock remains within the range defined by the strike price and premium, or breaks even prices. This strategy can be a highly effective way to generate a profit.
The Short Straddle option strategy is a complex type of Options trading, and it is used by many highly experienced traders. Traders use this strategy to profit when the market lacks direction. While this strategy can be complicated, it is extremely profitable if you have the right strategies. Traders usually use it during volatile periods, like after the election. The goal is to earn maximum profit with the lowest risk. However, it can also be risky.
As with any trading strategy, the long straddle options strategy is not a substitute for market analysis. You have to predict the timing perfectly, and the direction of change. If you have a good knowledge of market behavior, this strategy is an excellent way to make profits no matter what direction the market is going. As long as you are careful about the timing, this strategy can pay off handsomely. It will also save you from a directional dilemma. Traders should be aware that the market is unpredictable, and it is, therefore, vital to determine the direction of change.
This strategy involves two different types of options. You may purchase the Put in the market, but choose the right time to exercise your short call. The put will expire at a premium of $ 90. If the stock rises quickly, you can use this strategy to capitalize on price moves. Ideally, you will not need to sell your short call, but if it moves dramatically, you should consider rolling it out.