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When industry is stable, options can be a big winner for certain option trading strategies. One of them is just a short straddle. A short position like this is made up of a short call and a short put option. straddles can earn the investor premium income right away. To completely understand the dynamics of a straddle, it is most beneficial to understand the basic risks and rewards with selling options short.calendar spread
An investor who sells short a phone option is looking to help make the premium income on the sale. The options trader is hoping industry declines or stays the same - thus keeping the premium earned without any obligation to the decision holder. If industry rises, and the stock itself is not owned by the options investor - anyone could sustain an unlimited loss. Each time a call option is exercised, the seller must deliver the stock at the strike price. If he does not own it, he has to buy it on the market - which will in all probability be higher compared to the price he needs to sell. A short call is part of a short straddle.straddle option
Selling puts short also generates premium income, but this trader would want the stock to increase - allowing the put to expire. The most gain because of this investor could be the premium. If industry declines, the put could get exercised. The obligation of a short put investor is to purchase the stock at the strike price. The trader will lose if this happens. Selling puts is another part of a short straddle.
Short Straddle Strategy
The cornerstone behind the strategy is to take advantage of what short calls and short puts can accomplish together. The straddle will earn the investor more in premium then if the options were sold independently as single contracts. Combining these can provide investor more profit - but carry more risk. When someone is familiar with a specific stock and it's normal trading behavior - they can be great candidates for brief straddle investing. If you're playing a stock that shows limited movement or at least limited trading movement throughout a particular time - a short straddle could work well. All you could are seeking is for both options to expire. The premiums received is the most gain.