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5.1. Short Straddle

ProficiencyDirectionVolatilityAsset LegsMax RiskMax RewardStrategy Type
+
AdvancedNeutralLow• Short PutUncappedCappedIncome
   • Short Call   


5.1.1. Description

The Short Straddle is precisely the opposite of a (Long) Straddle. We short ATM puts and calls with a short time to expiration (one month or less) in order to pick up income. Because we're short options, time decay works for us, so we only select short-term expiration dates. Also we're exposed to potentially unlimited risk, which is another reason for making this a short-term strategy. As such, it's not one I'd recommend to inexperienced traders. The problem is that you could be successful at it for months, picking up modest income over and over again, and then whooomph, one big loss will wipe out years worth of gains. It's not worth it.


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