Short Straddle options strategy
A short straddle sells a call and a put at the same strike, profiting when the underlying stays near the strike and implied volatility falls. Risk is large in both directions.
How the short straddle is built
Sell the 200 call for 8 and the 200 put for 8, for a total credit of 16.
Profit and loss at expiration
The expiration payoff is calculated as: Profit = 16 − max(S − 200, 0) − max(200 − S, 0).
- Maximum profit
- The total premium received = $16 per share, at the strike.
- Maximum loss
- Very large — losses grow in either direction beyond the breakevens.
- Breakeven
- Strike ± total credit = 184 and 216.
Worked example
At an expiration price of 200, both options expire at the strike and you keep the full $16 credit per share.
When to use it
Use it when you expect the underlying to remain range-bound and volatility to contract. It is an advanced, high-risk income strategy.
Managing the risk
Unbounded risk on both sides makes strict position sizing and active management essential.
Frequently asked questions
What does a short straddle need to profit?
A quiet, range-bound underlying and falling implied volatility so both options decay.
Is a short straddle high risk?
Yes — it has large potential losses in either direction and is intended for experienced traders.
Model this strategy
Open the free OptCurve calculator to plot the short straddle payoff, mark breakevens, and overlay it with other strategies.
Open the P&L calculator