Short Straddle
An options income strategy that sells both a call and a put at the same strike and expiration, profiting when the underlying stays near the strike.
What is Short Straddle?
A short straddle is a high-risk, income-generating options strategy constructed by simultaneously selling an at-the-money call and an at-the-money put on the same underlying asset with the same strike price and expiration date. The maximum profit equals the total premium collected and is achieved when the underlying expires exactly at the strike price. The strategy loses money when the underlying moves significantly in either direction — with theoretically unlimited loss to the upside (from the short call) and substantial loss to the downside (limited only by the stock going to zero on the short put). Short straddles are best suited for low-volatility environments and typically require approval for trading naked options.
Example
A trader sells a $100 straddle (short $100 call + short $100 put) for a total premium of $8.00. Maximum profit is $800 per contract if the stock closes at $100 at expiration. The break-even points are $92 and $108. If the stock jumps to $130 on unexpected news, the short call alone generates a loss of $30 − $8 = $22 per share, or $2,200 per contract.