Short straddle

A straddle involves both purchase and sale. In short straddle one put and one call are sold.

short straddle

The short sale of an equal number of call options and put options with identical strike prices and expiration dates. A short straddle produces a profit only when the price of the underlying asset remains within a limited range.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

In case of short straddle, though the investor earns an income, one should use it with extreme caution as the losses could be high if the expectations of limited volatility prove incorrect.

Short Straddle: This strategy is the reverse of long straddle and is implemented by selling a call and a put option with the same underlying security, strike price and expiry date.

Rajesh purchases 6,450 RST Index options and enters the long straddle; Naveen sells 6,550 RST Index options and enters short straddle. The cost of trade for long straddle is Rs 9,500 [(100+90)x 50], and for short straddle, it is Rs 9,250 [(80+105)x 50].

Short straddle reaches its break-even points at 6,365 and 6,735.

The long and short of straddle

This finding suggests that the positive returns from the short straddle positions mainly result from decreases in implied volatilities of the options in the straddle.

The Risks and Rewards of Selling Volatility

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