
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioLeveraging the analyze tabCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
Long callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBrokersCandlestick patternsChart patternsDividendsEconomic indicatorsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend trading
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a botAutomation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginSignup
EducationCoursesNeutral Options StrategiesShort Straddle

Neutral Strategies
Lesson
1
of
7


Short Straddle
7:11


Long Straddle
7:25


Iron Condors
3:37


Short Strangle
8:21


Long Strangle
7:56


Iron Butterfly
9:12


Unbalanced Iron Condors
7:12

Short Straddle

A short straddle is a multi-leg, neutral strategy with undefined-risk and limited profit potential. Short straddles have no directional bias and capitalize on a decrease in volatility and minimal movement from the underlying stock.
Kirk Du Plessis
May 20, 2022
•
7 min video





Short straddles are aggressive premium selling strategies where you sell both the ATM call and ATM put option at the same strike price with the same expiration date. This maximizes the credit received and is best used with ultra-high IV stocks. Because of the undefined risk nature of this strategy, it's best to use this sparingly (again only with great setups). We will only trade 1 to 2 straddles in our overall portfolio at a time. Profit taking on this strategy is much quicker and you'll look to close out winning trades at 25-50% of max profit to conserve capital.

Transcript

This is the video tutorial for the short straddle options strategy. As we get into it here, the market outlook for this strategy as a trader is that you're looking for a completely flat stock and virtually no movement at all, and I mean no movement.

You want a stock that is trading flat, very little intraday and daily movement. The market neutral strategy is designed for low volatility conditions where stocks are inactive, and you can collect a premium as a result. That’s the only strategy that I would use this particular short straddle on going forward.

Now, how to set up a short straddle is pretty easy. You're going to think about it like selling two options individually; you’re just going to put them together. You're simply going to sell a call option and a put option with the same strike price for the same expiration period.

In our example here, what we’re going to do is sell one at the money call at a strike price of 40, and we’re also going to sell another at the money put at a strike price of 40 and that creates the point here where the option payoff diagram pivots.

Now, to learn more about option payoff diagrams, just watch one of our other video tutorials. Now, you can shift your sales up or down, but most strategies are centered on the money.

You can shift these strategies to the right or the left, you can shift them up towards 50 or down towards 30, but, if you want the stock to trade virtually flat or no movement at all, you’re going to center it right around where the stock is trading right now. That's going to be your biggest area of profit potential.

What’s the risk? Well, the risk of this strategy is that the stock moves outside of your boundary or breakeven point and there is a maximum loss probability here or unlimited potential with this strategy because the stock can go up exponentially in price.

If that happens, then you could see big losses. Of course, you can mitigate this loss with some of the premia that you received and hedging strategy that I’m going to talk about here at the end of this video.

The profit potential for this strategy is pretty limited. The maximum gain you can get is just the income you receive from selling both options.

Remember that we’re going to take income to the right off the bat, and we want to keep as much of that income as possible, we can't get any more income, you can see it’s 100% capped at $400, you can’t get more than that on this particular strategy.

Since we’re selling options with the same strike price, using the money options, you stand to make good income should the stocks stay flat. As we talked about earlier, you don't want any volatility movement in this particular strategy.

Remember that volatility is very, very bad. You want no volatility. You want the stock to trade flat or even. Any increases in implied volatility could create a loss even if the stock doesn't move.

If generally, options are more volatile and your stock still doesn’t move, then even that one factor of implied volatility can create a small loss for your strategy.

Time decay is positive for this particular options strategy. Since we are selling options and taking in that premium right off the bat, the best thing that can happen is that these options can expire worthlessly.

Each day that the stock doesn't move or move slightly creates the opportunity for making money. Remember that time decay for this strategy means profits and usually, time decay for any option selling strategy means more profit and more income. Now, breakeven points are very easy to calculate.

It's very similar to how we calculated them with long straddles as well. But with short straddle, what you’re going to do for the upper-level breakeven point is you’re going to take the short call value, and you’re going to add the premium that you received, and that’s going to give you this particular point here on the graph which is where it breaks even on the upper level.

For the lower level, you’re going to take the short put strike, and you’re going to subtract the premium that you received as well and that creates this other lower level breakeven point. As long as the stock closes inside this range centered around 40, you’re going to make money at expiration.

Now, let’s look at an example here. Let’s say the stock is trading at a price of around $40, right here where my cursor is. You’re going to sell one 40 calls for $200, and then you’re going to sell a 40 put for $200 as well, taking in a total of $400 on the trade combined.

Now, your maximum loss is unlimited because the stock can continue to rise or continue to fall. We want it to stay very, very neutral to flat. The maximum profit you can make on this strategy is $400, and that is the credit that you receive for selling these options.

You can’t make any more than that. And notice on my chart here how the profit loss diagram is capped at $400. Some tips and tricks that I’ve learned over the years that I want to share with you guys: Many months of consistent profits with this strategy can be quickly erased without proper risk management.

I guess that could be used in any trading strategy that you have. But this, in particular, I’ve seen a lot of traders who have used this very consistently over a couple of months, they make a couple of hundred dollars, and they wipe it out during periods of high volatility.

You want to use these during periods of high to low volatility versus adding during periods of already low volatility. If you add during periods of low volatility, then you run the risk of increasing volatility that the stock has a breakout.

What you'd ideally like to do is capture the stock after it's already made a dramatic move and is starting to settle down. Now, you can easily hedge this position by purchasing another call or put and creating a credit spread on either end.

I’m going to show you what this means with my cursor. Let's say that the stock is starting to move outside of the 40 mark. You can easily purchase a call option right here at a strike price of 50, and it would cap your losses at the 50 strike price.

Same thing if the stock was starting to move down dramatically. You could easily purchase a put option with a strike price of 30, and that would cap your losses to the downside at 30.

This is something you can do later on down the road as you start to adjust and watch this position evolve. You don't have to do it right now or as soon as you enter this position, but you should have it at least in the back of your mind here as a way to hedge and protect the unlimited risk feature of this strategy.

As always, I hope you guys enjoyed this video and thanks for watching. Please use the social links right below here to share this video with your friends, family or colleagues on your favorite social network.

The transcript is not available yet. Please check back soon.

Options
Strategies

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547