Short Straddle

1. Definition

A Short Straddle is a neutral strategy where an investor simultaneously sells (writes) both a Call option and a Put option with the same strike price and expiration date. It is a pure bet that the stock price will not move much.

2. Market View

• Low Volatility / Range-bound: Best used when the market is expected to be quiet and stable. The trader wants the stock price to "pin" at the strike price.

3. Setup

• Action: Sell 1 ATM Call + Sell 1 ATM Put.
• Cash Flow: High Net Credit (Collecting double premiums upfront).

4. Profit & Loss

4.1. Max Profit

Limited The profit is strictly limited to the total premiums received at the start. This happens if the stock closes exactly at the strike price at expiration.

4.2. Max Loss

Unlimited This is an extremely risky strategy. If the stock price skyrockets (Short Call risk) or crashes (Short Put risk), the losses can be catastrophic and theoretically infinite.

5. Characteristics

It offers a high probability of profit (since markets often consolidate), but the risk-to-reward ratio is very poor. A single black swan event or strong trend can wipe out months or years of accumulated profits.