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.
Featured in Trade Review: None at this time
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