This strategy is just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
SHORT PUT Vs SHORT STRADDLE - When & How to use ?
SHORT PUT
SHORT STRADDLE
Market View
Bullish
Neutral
When to use?
This strategy works well when you're Bullish that the price of the underlying will not fall beyond a certain level.
This strategy is work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Sell Put Option
Sell Call Option, Sell Put Option
Breakeven Point
Strike Price - Premium
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
SHORT PUT Vs SHORT STRADDLE - Risk & Reward
SHORT PUT
SHORT STRADDLE
Maximum Profit Scenario
Premium received in your account when you sell the Put Option.
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Unlimited (When the price of the underlying falls.)
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Unlimited
Unlimited
Reward
Limited
Limited
SHORT PUT Vs SHORT STRADDLE - Strategy Pros & Cons
SHORT PUT
SHORT STRADDLE
Similar Strategies
Bull Put Spread, Short Starddle
Short Strangle
Disadvantage
• Unlimited risk. • Huge losses if the price of the underlying stock falls steeply.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• Benefit from time decay. • Less capital required than buying the stock outright. • Profit when underlying stock price rise, move sideways or drop by a relatively small account.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .