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Sell Straddle
Selling a straddle consist of a sale of both a put and a call with the same strike price
within the same contract month. Since both options are sold the seller will collect a
premium. This is a market neutral, limited reward/unlimited risk strategy. This strategy is
normally implemented when the trader believes that either implied volatility is too high
or the underlying market is entering a consolidation period.
Breakeven point occurs at expiration when the price of futures is the same distance away from the strike price as the premium received.
Maximum profit = premium received.
Maximum loss = unlimited to the extent the underlying market can move, minus premium received.
- In The Money: Future price either above or below strike price.
- At The Money: Future price at or near strike price.
- Out Of The Money: None. The straddle has to be either ITM or ATM.
- Delta is negative when above the strike price and positive when below strike price.
- Gamma is negative. Underlying price movement hurts.
- Vega is negative. Higher implied volatility hurts.
- Theta is positive. The passage of time helps.
