Name: Short Straddle

Setup: Sell (short) Strike A put and Sell (short) Strike A call

Bias: Neutral


Break-Even: Two break-evens exist:


  • Strike A – Credit received
  • Strike A + Credit received

Max Profit: Limited: Credit received

Max Loss: Unlimited

Margin: Margin is the greater margin requirement from the Short Put or the Short Call + the premium received from the other side

Time Decay: Time decay is a positive effect.  You are looking for both sides of your spread to expire worthless.

Implied Volatility: After the position has been put on you want implied volatility to decrease thus lowering your option prices.

Notes: This position carries a lot of risk since you are naked two options in either direction.  Playing direction is not as important as playing the implied volatility here.  Look for the underlying to have a lot of volatility and put the position on when you believe it will decrease.

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