Short one call option and short one put option at the same strike price.
Maximum Loss: Unlimited as the market moves in either direction.
Maximum Gain: Limited to the net premium received for selling the options.
When to use: When you are bearish on volatility and think market prices will remain stable.
Short straddles are a great way to take advantage of time decay and also if you think the market price will trade sideways over the life of the option.
Comments (8)
Peter
November 19th, 2010 at 12:29am
Yep, that's called a Short Strangle and is exactly what they're designed for.
kumar
November 18th, 2010 at 11:42pm
can i sell 6200 call one lot and sell 5700 put one lot both expiry nov with a view to take advance of time decay. I fell both the options would expire worthless since there is only 5 more trading days. Kindly advise.
Peter
May 23rd, 2010 at 11:17pm
A short call has a negative delta, which means you will need to "buy" deltas to hedge. Normally this is done with the underlying asset i.e the stock or future, but can be any strategy that produces a positive delta.
PAYAL
May 23rd, 2010 at 1:05pm
Which Strategy is used to hedge Short Call Option Strategy and Why?
Admin
March 23rd, 2009 at 4:23am
That's right Rudy, so it depends on your view of the underlying as to what strategy you decide.
Rudy
March 23rd, 2009 at 3:38am
Which is a better strategy? short straddle or short strangle? While short straddle offers more premium, short strangle has better odds for success.
Admin
January 13th, 2009 at 6:16pm
Typically you would short the ATM strikes as you would be neutral on market direction.
Shibaprasad
January 13th, 2009 at 10:08am
Shoul I short the puts and longs as otm or atm?
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