Stock Market · Option Strategies

Short straddle

A short straddle is the opposite of buying one. You SELL both the call and the put at the same strike. You collect premium and profit when the market goes NOWHERE.

Construction

Example: Nifty at 22,000, expecting a quiet week.

• Sell 22,000 call @ ₹250
• Sell 22,000 put @ ₹240
• Total premium collected: ₹490

Payoff

• Maximum profit: ₹490 × 75 = ₹36,750 (if Nifty closes exactly at 22,000)
• Breakeven above: 22,490
• Breakeven below: 21,510
• Loss: UNLIMITED if Nifty moves sharply in either direction

> You are theta seller now. Every day that passes without movement, your position gains value.

The biggest risk

A short straddle has UNLIMITED theoretical loss. If Nifty gaps 500+ points on news, you can lose 5-10x the premium you collected. This is not a beginner trade.

SEBI requires substantial margin deposits for naked short options. Expect ₹1-2L margin for a Nifty straddle.

When professional traders use it

• In very low IV environments (when premium is thin, avoid, not worth the risk)
• When they have conviction markets will range for the week
• Often converted to an iron condor by adding wings to cap the loss

= Most retail traders should NOT sell naked straddles. Convert to iron condors instead.

Takeaway. Short straddle collects premium by selling both call and put. Profits from non-movement (theta). Unlimited loss if market moves sharply. This is a professional strategy. Always add wings to cap risk.