Option Strategy: Short Straddle

A Short straddle is a combination of writing uncovered Calls and puts, both with same strike price and expiration date. it is used when investor predicts narrow range for underlying stock.

The strategy involves Selling a call option and a put option with the same expiration and strike price.

Max loss in this strategy is unlimited, in either event (Selling call or put option) the loss is reduced by premium income received for selling options. Max gain is limited to the premium received from selling options.

Breakeven points
Upside Breakeven = Strike + Premium paid.
Downside Breakeven = Strike – Premium paid.