A sold straddle is a non-directional options trading strategy that involves simultaneously selling a put option and a call option of the same underlying security, strike price and expiration date. The profit is limited to the premiums of the put option and call option, but it is risky if the underlying security’s price goes up or down much. The deal breaks even if the intrinsic value of the put or the call equals the sum of the premiums of the put and call. This strategy is called “non-directional” because the short straddle profits when the underlying security changes little in price before the expiration of the straddle. The short straddle can also be classified as a credit spread because the sale of the short straddle results in a credit of the premiums of the put and call.
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