Snapshot
Legs
Sell 1 At-the-Money Call + Sell 1 At-the-Money Put
Outlook
Neutral / Low Volatility
Max profit
Net credit received
Max Loss
Unlimited to the upside, Substantial to the downside
A short straddle option strategy involves selling both a call option and a put option at the exact same strike price and expiration date on the same stock. You collect a large cash credit upfront for selling both contracts. Traders use this strategy when they expect the stock price to stay almost completely motionless until the options expire.
The maximum profit equals the total cash credit collected upfront, achieved only if the stock price lands exactly on the strike price at expiration. The financial risk is substantial, with unlimited loss potential on the upside and massive loss potential on the downside if the stock makes a sharp move in either direction.
Example
Stock
$100
Trade
- Sell $100 Call for $4.00
- Sell $100 Put for $4.00
→ $8.00 credit ($800)
Breakevens
$92.00 / $108.00
Outcomes
- Stock at $100: +$800 Max Profit
- Stock at $92 or $108: $0 Breakeven
- Stock far from $100: Loss (e.g., -$400 at $112; -$700 at $85)