Question

Which of the following would be an advantage of a short straddle option strategy? a. A...

Which of the following would be an advantage of a short straddle option strategy?

a. A precipitous drop in price

b. A precipitous rise in price

c. The price of the underlying asset remains near the strike price

d. None of the would be a disadvantage of a straddle

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Answer #1

The short straddle strategy is a strategy in which the option writer writes one call option and one put option , where the strike price of the call option is higher than the put option. The option writer will not earn if the price either rises or falls. Infact he can earn if the stock prices trades closer to the strike prices.

A short straddle is established for a net credit and profits if the underlying stock trades in a narrow range between the break-even points , potential loss is unlimited if the stock price rises and substantial if the stock price falls.

Hence, the correct option is option C.

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