Short Straddle
Selling a call and put at the same strike and expiration to collect premium while accepting substantial two-sided risk.
What is a Short Straddle?
Selling a call and put at the same strike and expiration to collect premium while accepting substantial two-sided risk.
Construction
Sell one call and one put at the same strike and expiration, generally uncovered unless combined with other positions.
When it may be studied
To understand advanced short-volatility exposure—not as a beginner strategy.
Expiration profile
Maximum risk: Unlimited upside and substantial downside
Maximum reward: Total credit received
Break-even: Strike plus or minus total credit
Worked example
Sell a 100 call and 100 put for $8 total credit. Simplified break-evens are $108 and $92, with loss growing outside that range.
Key risks and limitations
Upside loss is theoretically unlimited. Downside loss is substantial. Gap risk, margin changes, and assignment can make losses difficult to control.
Entry and exit checklist
- Confirm contract multiplier, expiration, exercise style, settlement, and liquidity.
- Calculate the maximum loss under the intended structure.
- Review earnings, dividends, corporate actions, and other event risks.
- Define an exit, adjustment, or expiration plan before entry.
- Understand what happens if one leg is assigned or exercised early.