When the market is stable, options can be a big winner for certain option trading strategies. One of them is a short straddle. A quick position like that is composed of a quick call and a quick put option. straddles can earn the investor premium income right away. To completely understand the dynamics of a straddle, it is best to understand the fundamental risks and rewards with selling options short.stock options trading
An investor who sells short a call option is looking to help make the premium income on the sale. The options trader is hoping the market declines or stays the exact same - thus keeping the premium earned without the obligation to the call holder. If the market rises, and the stock itself isn't owned by the options investor - anyone could sustain an unlimited loss. Whenever a call option is exercised, the vendor must deliver the stock at the strike price. If he doesn't own it, he has to get it on the market - which will likely be higher than the price he must sell. A quick call is part of a quick straddle.options market
Selling puts short also generates premium income, but this trader would want the stock to rise - allowing the put to expire. The utmost gain because of this investor could be the premium. If the market declines, the put may get exercised. The obligation of a quick put investor is to get the stock at the strike price. The trader will lose if this happens. Selling puts is one other part of a quick straddle.
Short Straddle Strategy
The basis behind the strategy is to take advantage of what short calls and short puts can accomplish together. The straddle will earn the investor more in premium then if the options were sold on their own as single contracts. Combining these can provide investor more profit - but carry more risk. If someone is knowledgeable about a particular stock and it's normal trading behavior - they may be great candidates for short straddle investing. If you're playing a share that shows limited movement or at the least limited trading movement within a particular time - a quick straddle could work well. All you could are looking for is for both options to expire. The premiums received is the most gain.