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27 Mar 2016

When the marketplace is stable, options can be a big winner for several option trading strategies. One is a short straddle. A brief position like this is comprised of a brief call and a brief put option. straddles can earn the investor premium income right away. To fully understand the dynamics of a straddle, it is best to understand the basic risks and rewards with selling options short.iron condor

Short Call

An investor who sells short a phone option is looking to really make the premium income on the sale. The options trader is hoping the marketplace declines or stays exactly the same - thus keeping the premium earned without any obligation to the call holder. If the marketplace rises, and the stock itself isn't owned by the options investor - the individual could sustain an unlimited loss. Each time a call option is exercised, owner must deliver the stock at the strike price. If he does not own it, he has to get it in the market - which will likely be higher than the price he needs to sell. A brief call is element of a brief straddle.calendar spread

Short Put

Selling puts short also generates premium income, but this trader would want the stock to rise - which allows the put to expire. The most gain with this investor is the premium. If the marketplace declines, the put could get exercised. The obligation of a brief put investor is to get the stock at the strike price. The trader will lose if this happens. Selling puts is the other element of a brief 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 by themselves as single contracts. Combining these may offer the investor more profit - but carry more risk. If someone is knowledgeable about a specific stock and it's normal trading behavior - they can be great candidates for brief straddle investing. If you should be playing a stock that shows limited movement or at the very least limited trading movement throughout a particular time - a brief straddle could work well. All you could are looking for is for both options to expire. The premiums received is the maximum gain.


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