Short Straddle

Components

Short one call option and short one put option at the same strike price.

Risk / Reward

Maximum Loss: Unlimited as the market moves in either direction.

Maximum Gain: Limited to the net premium received for selling the options.

Characteristics

When to use: When you are bearish on volatility and think market prices will remain stable.

Short straddles are a great way to take advantage of time decay and also if you think the market price will trade sideways over the life of the option.