Short Straddle Option Screener

Hi, and welcome to the Options Learning Center. I'm going to show you how to sell short straddles and use Barchart to get the most out of the strategy.

What Is A Short Straddle?

A short straddle is a neutral options trading strategy that involves selling both a call and a put on the same underlying asset with identical expiration dates and strike prices. The goal is for the asset's price to remain close to the strike price at expiration.

Traders use this strategy when they expect the asset's price to trade within a narrow range. The maximum profit is the premium received, and losses occur if the stock's trading price moves beyond the breakeven points in either direction.

Trade Examples

Barchart makes it easy to look for underlying assets to use for specific options trading strategies. For short straddles, visit Barchart.com, click Options, then Short Straddle.

You'll be brought to a results page containing assets you can use for the short straddle strategy. You'll also see essential trading details like the strike price, premiums, breakeven points, and the probability of losing on the trade. You can arrange each column from highest to lowest or vice versa by clicking on the column head. Everything you see here should be enough to get you started on the trade.

However, more experienced traders will want to customize their searches using different criteria. So, let's see how Barchart allows you to do just that.

Example With Filters/Screening

From the results page, go to the "Set Filters" tab. As you can see, there are already a few default filters right here, all of which are recommended for short straddle trades.

To add different filters, you can click on the "Add a Filter" field and type in what you need, or you can go to the dropdown menu and check the different categories and filters. Once you have one, click Add, and the filter will appear on your screen. It's that easy.

Once ready "See Results." By the way, you can also save your screener to reuse it later, and more than that, you can have Barchart email you at a specified time with your trades.

And so here we have four underlying assets that fit the criteria I set. I'll take the one of the lowest loss probability, NLY, and I'll use that as an example.

Using NLY as the underlying asset, I'll write a $20-strike short call and put, receiving 49 and 30 cents respectively, for a total of 79 cents for the whole trade.

This short straddle will expire on September 20, 2024, approximately 32 days from now, and has a 32.6% probability of loss.

Now, let's see how this trade could play out.

Short Straddle Breakeven Prices

First, we need to know our breakeven prices. These are displayed on the results page here for quick reference.

But, it's also nice to know how they are calculated. Since this is a short option trade, where you receive a premium at the start, you can simply add the net premium received to the strike to get the upside breakeven price.

For the downside breakeven, it's just subtracting the net premium from the strike price.

$20 + $0.79 = $20.79
$20 - $0.79 = $19.21

Short Straddle Expires Worthless (Profit)

Now, if NLY's stock trading price is exactly $20 at expiration, you'll receive the maximum profit for the trade, which is 79 cents, or $79 a contract. Again, the maximum profit is the total of the premium received at the start of the trade.

Short Straddle Expires In The Money (Loss)

However, if the price of NLY moves beyond either of the breakeven prices at expiration, the trade will start to accumulate a loss.

Let's say the underlying asset's price rallies to $25 at expiration. In that case, your loss is calculated by subtracting the breakeven price to the upside, which is $20.69, from the stock's current trading price, which is $25, and then multiplying by 100. And that works out to a loss of $431.

Just remember, a short straddle's loss on the upside is potentially unlimited, especially if the price keeps climbing.

($20.69 - $25) * 100 = -$431

Short Straddle Expires In The Money (Loss)

If NLY's stock moves below your downside breakeven price, you'll start losing money on the trade.

So, let's say for example it trades at $15 by expiration. Your total loss will then be $421, which is calculated by subtracting the current trading price from the downside breakeven price, which is $19.21, times 100 for every short straddle.

On the downside, the trade will hit maximum loss if the underlying asset's price goes to zero at expiration, but that's very unlikely.

($15 - $19.21) * 100 = -$421

Profit/Loss Across Different Price Points

Here's a quick profit/loss table at different price points to better illustrate how a short straddle can play out.

Notice how there's only one price where you'll get maximum profit for the trade, which is at your strike price. Any further movement above and below the strike price and breakeven points will cause you to start losing on the trade.

Screening For Short Straddles On Specific Assets

I showed you how Barchart's Options Screener searches for potential trades in the entire stock market. You can also look for long straddle trades using a specific asset.

To do that, visit Barchart.com, search for the asset, which takes you to the Quote Overview page for the asset, and then go to the left-hand panel and look for Straddles and Strangles. Click on that, and you'll be brought to the results page for long straddles. From there, you can filter using the column headers, change the expiration dates, or enter a specific strike price.

To further refine your selection, you can also click “screen” and then “set filters”, and then add or changed the filters as you like, just as I demonstrated earlier. It's that simple.

Pros and Cons

Short straddles, like other option strategies that generate net credit at the start, are attractive to traders seeking immediate cash flow. This strategy works particularly well in markets with minimal price movements, as time decay benefits the seller. The range-bound breakeven prices provide some protection against small price fluctuations.

• Immediate Net Credit
• Ideal in Neutral Markets
• Benefits from Time Decay
• Lower Breakeven Protection

However, short straddles can be extremely risky with potentially unlimited loss, as I've shown on the table, and may require significant margins to trade. It is also very sensitive to volatility, given that its max profit point is only on one price. Lastly, short straddles have limited profit potential.

• Unlimited Loss Risk
• High Margin Requirements
• Volatility Sensitivity
• Single Price Profit
• Limited Profit Potential

Conclusion

Like any other options trading strategy, short straddles should be used in specific market conditions that point to favorable outcomes. In this case, you should only ever use it if you fully expect the price of an underlying asset to not move or stay the same until expiration. And for trades like this, I suggest using the Short Straddle Options Screener for better chances of profit.

For further information about short straddles, or if you want a better, more fitting strategy alternative for your trading, visit the Barchart Options Learning Center.