This strategy is used for stocks that appear to be in a holding pattern in terms of price movement.

Important notice
The information on this web site is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Trading in stocks and options involves risk. You can lose money. You should always seek professional advice from your stock broker. We are not stockbrokers and do not make recommendations to buy or sell any stock or option. We provide educational information for your evaluation.

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In the Short straddle strategy we purchase the same number of Option contracts at the same strike price and the same expiration date.

This is a great strategy to use on a stock that appears to be stuck in neutral and allows us to receive premiums for writing stock options.

Because we are writing (Selling) these options we need a stock that it is not volatile, if the stock does not move, the options will expire worthless and we can keep the premium and do not have to pay any commissions for the closing of this strategy.

This is also a good play if we would like to own the stock for less money, in case the price of the stock drops and we are required to buy it.

XYZ Stock trading at 63.00

• Write the May Call Options 65.00 strike price at 2.41
• Write the May Put Options 65.00 strike price at 4.42

A credit of 2.41 + 4.42 = 6.83

Our responsibility are if XYZ stock moves above 65.00 strike price we have to provide the XYZ stock to the call buyer at the 65.00 strike price If the XYZ stock stays below the 65.00 we will have to purchase the stock at 65.00.

Each option contract is equal to 100 shares.

XYZ stock at expiration is trading at at 62.00 the put buyer will put the stock to us at 65.00,  the stock is trading at 62.00 we pay 65.00 we are losing 3.00 we did receive 6.83 for writing the options, our loss is 3.00 our gain is 6.83 we can sell the XYZ stock in the market for 62.00 and keep the difference from the credit 3.83 profit.

 XYZ stock at expiration date is trading at  69.00 the call buyer will demand that we provide the XYZ stock at 65.00, we buy the XYZ at 69.00 we receive 65.00 we are losing 4.00 we did receive 6.83 from writing the options  6.83 - 4.00 = 2.83 is our profit.

No consideration was given to the brokers fees or margin cost, etc.