A short straddle is an options strategy consists of selling both a call option and a put option of the same strike price and expiration date. It is used, when the trader believes the underlying asset, NIFTY or F&O stocks, will not move significantly higher or lower, till expiry of the options contracts. The maximum profit is the amount of premium collected by selling the two options. The potential loss can be unlimited, so it is typically a strategy for more experienced traders. So, this is a trade which is executed in oscillating markets.

The range in which the underlying lies on expiry, is profitable for the option strategy, if between the cumulative premium collected, i.e. ATM strike call option + total premium collected and ATM strike put – total premium (the BEP points). These are the two potential breakeven points at expiration at the strike price plus or minus the total premium collected.

Consider a sell straddle where Nifty Futures Fair value is quoting at 17,558, trader shall

Sell 17550 8 Sep 2022 CE at 184.85

Sell 17550 8 Sep 2022 PE at 179.40

It’s a net credit strategy with premium inflow of about Rs 18,213, as also indicated in the tool of Quantsapp, i.e. sum of the two option premia, which are sold. The expiry payoff is indicated in orange colour. Expiry BEP1 of the strategy is at 17,186 and Expiry BEP2 of the strategy is at 17,914.

The entire option premium collected for the two legs is the maximum profits if Nifty, the underlying, expires at the same level of about 17,558. The maximum profit is limited if Nifty stays between the expiry BEP1 and expiry BEP2.

A short straddle is an options strategy consists of selling both a call option and a put option of the same strike price and expiration date. It is used, when the trader believes the underlying asset, NIFTY or F&O stocks, will not move significantly higher or lower, till expiry of the options contracts. The maximum profit is the amount of premium collected by selling the two options. The potential loss can be unlimited, so it is typically a strategy for more experienced traders. So, this is a trade which is executed in oscillating markets.

The range in which the underlying lies on expiry, is profitable for the option strategy, if between the cumulative premium collected, i.e. ATM strike call option + total premium collected and ATM strike put – total premium (the BEP points). These are the two potential breakeven points at expiration at the strike price plus or minus the total premium collected.

Consider a sell straddle where Nifty Futures Fair value is quoting at 17,558, trader shall

Sell 17550 8 Sep 2022 CE at 184.85

Sell 17550 8 Sep 2022 PE at 179.40

It’s a net credit strategy with premium inflow of about Rs 18,213, as also indicated in the tool of Quantsapp, i.e. sum of the two option premia, which are sold. The expiry payoff is indicated in orange colour. Expiry BEP1 of the strategy is at 17,186 and Expiry BEP2 of the strategy is at 17,914.

The entire option premium collected for the two legs is the maximum profits if Nifty, the underlying, expires at the same level of about 17,558. The maximum profit is limited if Nifty stays between the expiry BEP1 and expiry BEP2.

It is how much that markets swing is of a concern, silent markets or silent Nifty would be a boon to the traders, as the forecast is a range for Nifty and as far as the index expires in that forecasted range, the needful has been accomplished.

Money spinner: Do we have to write options always equidistant?

In both, sell straddle option strategy and sell strangle option strategy, the strike price selected are equidistant, which creates an idealistic picture. Do we really think that amidst varied market regimes, it would be wise to follow such a principle (i.e. of equidistant strikes). The returns of the market are expected to follow a log normal distribution; but that isn’t a pragmatic case either. The prices tend to have an embedded drift in them, which needs to be taken into account.

In the Quantsapp application, a tool, namely option writer has varied range forecasts for traders to study and execute option writing strategies. The range forecaster which takes in to account parameters like volatility, drift, trend etc. is Quantsapp Forecast.

A sideways, rangebound move in the markets where price fluctuation on higher end and on the lower side is marginal.

As option traders face varying market regimes, short straddle is a suitable option strategy when the market regime is rangebound/oscillating.

Short straddle is a non-directional option strategy which is effective in rangebound/oscillating
markets, i.e. markets or the underlying has small fluctuations about the mean value of the
underlying. One has to remember that straddle is a non-directional strategy.

Option strategies may be hedged or unhedged implying, the payoff entails limited losses (hedged) or unlimited losses (unhedged).

Hedged option strategy means the losses in the strategy are limited, while in case of un-hedged option strategy results in unlimited losses.