When should you do a short straddle?

investopedia.com - Short Straddle Definition - Investopedia

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What Is a Short Straddle?

A short straddle is an options strategy comprised of selling both a call option and a put option with the same strike price and expiration date. It is used when the trader believes the underlying asset will not move significantly higher or lower over the lives of the options contracts. The maximum profit is the amount of premium collected by writing the options. The potential loss can be unlimited, so it is typically a strategy for more advanced traders. Key Takeaways Short straddles are when traders sell a call option and a put option at the same strike and expiration on the same underlying. A short straddle profits from an underlying lack of volatility in the asset's price.

They are generally used by advanced traders to bide time.

Understanding Short Straddles

Short straddles allow traders to profit from the lack of movement in the underlying asset, rather than having to place directional bets hoping for a big move either higher or lower. Premiums are collected when the trade is opened with the goal to let both the put and call expire worthless. However, chances that the underlying asset closes exactly at the strike price at the expiration are low, and that leaves the short straddle owner at risk for assignment. However, as long as the difference between asset price and strike price is less than the premiums collected, the trader will still make a profit. Advanced traders might run this strategy to take advantage of a possible decrease in implied volatility. If implied volatility is unusually high without an obvious reason for it being that way, the call and put may be overvalued. In this case, the goal would be to wait for volatility to drop and then close the position for a profit without waiting for expiration.

Example of a Short Straddle

Most of the time, traders use at the money options for straddles.

If a trader writes a straddle with a strike price of $25 for an underlying stock trading near $25 per share, and the price of the stock jumps up to $50, the trader would be obligated to sell the stock for $25. If the investor did not hold the underlying stock, they would be forced to buy it on the market for $50 and sell it for $25 for a loss of $25 minus the premiums received when opening the trade. There are two potential breakeven points at expiration at the strike price plus or minus the total premium collected. For a stock option with a strike price of $60 and a total premium of $7.50, the underlying stock must close between $52.50 and $67.50, not including commissions, for the strategy to break even.

A close below $52.50 or above $67.50 will result in a loss.

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How do you trade options without losing?

No loss option strategy : “in this strategy, You have to write extreme in the money call and put options at the same time and hold them till expiry. This strategy always pays 10-20% average return on capital”

dalalstreetwinners.com - no loss option strategy | Dalalstreetwinners™

Yes, this is possible. You can make almost 100% sure money trading in option with this strategy. In options, no matters what is the trend, most buyers always lose their money to the market. So you have to be on the selling side to make money, means you have to write options. Learn more about How to Trade options in India. No loss option strategy rules are as follows: This strategy will give its result in a minimum 1-month time frame so you have to patience. The entry period is at the start of expiry month or 1-2 days before it.

The exit will be at expiry hours or 1-2 days before it.

Need minimum 2 lakhs capital for stock options while for index option around 1 lakhs is sufficient to get 10-20%. Or in multiple of this minimum capital. In 90-95% times losses does not occur but in very volatile or on major collapse or rise, minor losses can be expected. Always choose a very liquid index or stock options to trade this strategy. Traders must keep stop loss as per risk profile or if the loss exceeds 5% of the total capital invested. To lock profits if you are having multiple lots of capital then can follow accumulate strategy.

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