Short Straddle
When neutral on the outlook for a stock, an investor might wish to generate income by selling same strike call and put options hoping that the stock will remain stuck in a defined range.
The short straddle seller is hoping for a lack of movement in the price of the underlying shares and is indifferent to direction. It is a fairly pure bet on decreasing volatility, and benefits from decay. A short straddle is created when an investor sells an equal number of calls and puts with the same strike and expiration. It may be used when investors expect a decrease in either implied volatility or in the movement of the price of the underlying equity.
Watch our Traders' Academy video to find out more about Neutral Market - Short Straddle.
Short Strangle
When neutral on the outlook for a stock, an investor might wish to generate income by selling different strike call and put options hoping that the stock will remain stuck in a defined range.
The short strangle is similar to the short straddle, though the strikes of the options differ. This is also a trade that benefits from decay and decreased volatility regardless of direction. Because the strike prices involved are further apart than a short straddle, there is a lower risk that this trade will cause the investor to face a loss.
Watch our Traders' Academy video to find out more about Neutral Market - Short Strangle.
Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” that you can find on the OCC website.