This preview shows page 1. Sign up to view the full content.
Unformatted text preview: n. Profit B 0 A Loss Bearish 13 SHORT STRADDLE
Construction: Sell 1 Call at A and Sell 1 Put at A. Margins: Yes. Your Market Outlook: Neutral. The share price will expire around the strike price A. If it does you will get to keep the option premium from both sold options. This strategy is also used if your view is that volatility will decrease. Profit: The maximum profit is the combined total premium you received for the sale of the options. One break-even point will be the strike price A, plus the combined options premium received. The other break-even point will be the strike price A, minus the combined options premium received. Loss: The maximum loss for this trade is unlimited on the upside and limited on the downside to the strike price, as the share can't fall below zero. Volatility: The option value will decrease as volatility decreases which is good for both options. Alternatively an increase in volatility will be bad for both options. Time Decay: As each day passes the value of the option erodes (go...
View Full Document