Short Straddle options trading strategy - stock market technical analysis #shorts #krinu

Unlike Long Straddle in which the investor buys Call and Put simultaneously, here in Short straddle the Investor Sells an ATM Call Option in Leg-1 and Sells an ATM Put Option in Leg-2 with the same strike , same Expiry for the same asset (Nifty)

Short straddle is a Credit strategy since the investor receives two premiums for both the legs as he sells them to the buyers, so here the profit for the investor ; if this strategy works to his favor is the net premium he had received from both the Legs, but on the flip side his Loss can be unlimited if this doesn't work.

here the investor makes profit ( the premium received) when the Nifty trades within the range of Leg-1 and Leg-2 Break-evens ; he had constructed,, if the Nifty trades above the break-even of Leg-1 (Since he had sold a Call which means he's Bearish in this Leg) or Nifty is extremely Bullish , he incurs a Loss from Leg-1 , which is offset by the gain he incurs from Leg-2(Put option sold ; means he's bullish)

when the Nifty is Extremely bearish or it trades below the break even of Leg-2 he incurs Loss from Leg-2 which is offset by the gain from Leg-1

so to effectively implement Short straddle strategy the outlook for the market needs to be neither Bullish nor bearish ,it needs to be with in the range constructed by the investor at the time of expiry , Unlike Long straddle where the market movement needs to break out of the range and move upwards or downwards to make profit.

or in other words Short straddle is effective when Volatility is expected to cool off or Implied Volatility is low for a stock or indices (Nifty) , since in a high volatile instances the market may swing on any side upward or downward drastically.
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