Economics Options And Futures Questions
The concept of a short straddle strategy in options trading involves selling both a call option and a put option with the same strike price and expiration date. This strategy is used when the trader believes that the underlying asset's price will remain relatively stable and not experience significant movement. By selling both options, the trader collects the premiums from the options' sale, but also takes on the obligation to buy or sell the underlying asset at the strike price if the options are exercised. The maximum profit for a short straddle strategy is achieved when the underlying asset's price remains at the strike price at expiration, while the maximum loss is unlimited if the price moves significantly in either direction.