Short Straddle Screener Results For July 13th

A short straddle is an advanced options strategy used when a trader is seeking to profit from an underlying stock trading in a narrow range.

To execute the strategy, a trader would sell a call and a put with the following conditions:

• Both options must use the same underlying stock
• Both options must have the same expiration
• Both options must have the same strike price

Since it involves having to sell both a call and a put, the trader gets to collect two premiums up-front, which also happens to be the maximum gain possible.

Due to the two premiums collected upfront, beginners are often attracted to this strategy without realizing the risks they face.

A short straddle can result in unlimited loss potential whenever a substantial move occurs so it should be used with caution, particularly around significant market events like an earnings announcement.

The opening position of this strategy means that you will start with a net credit and you will profit if the stock trades between the lower break-even point and the upper break-even point.

Let’s take a look at Barchart’s Short Straddle Screener for July 13th:

The screener shows some interesting short straddle trades on popular stocks such as JNJ, AAPL, PARA, DOW, NVDA, WMT, MU, TSLA, KO, AMD, AMZN, DAL, CLF, INTC, TWTR, F, GM, C and NEM. Let’s walk through a couple of examples.

JNJ Short Straddle Example

Let’s take a look at the first line item – a short straddle on Johnson & Johnson.

Using the August 19 expiry, the trade would involve selling the 175 strike call and the 175 strike put. The premium received for the trade would be $945 which is also the maximum profit. The maximum loss is theoretically unlimited. The lower breakeven price is 165.55 and the upper breakeven price is 184.45. The premium received is equal to 5.37% which is lower than some of the other examples due to JNJ being a low volatility stock. The probability of success is estimated at 58.3%.

The Barchart Technical Opinion rating is a 56% Buy with a weakest short term outlook on maintaining the current direction.

AAPL Short Straddle Example

Let’s take a look at the second line item – a short straddle on Apple.

Also using the August 19 expiry, the trade would involve selling the 145 strike call and the 145 strike put. The premium received for the trade would be $1,355 which is also the maximum profit. The maximum loss is theoretically unlimited. The lower breakeven price is 131.45 and the upper breakeven price is 158.55. The premium received is equal to 9.29% of the stock price. The probability of success is estimated at 58.3%.

The Barchart Technical Opinion rating is a 64% Sell with an average short term outlook on maintaining the current direction. Long term indicators fully support a continuation of the trend.

TSLA Short Straddle Example

Let’s take a look at one final straddle using Tesla. 

Using the August 19 expiry this time, the trade would involve selling the 700 strike call and the 700 strike put. The premium received for the trade would be $12,585 which is also the maximum profit. The maximum loss is theoretically unlimited. The lower breakeven price is 574.15 and the upper breakeven price is 825.85. The premium received is equal to 18.00%. The probability of success is estimated at 57.4%.

The Barchart Technical Opinion rating is an 80% Sell with a strongest short term outlook on maintaining the current direction.

Mitigating Risk

Short straddles involve naked options and are highly risky. They should not be used by beginner traders.

Position sizing is important so that a large loss does not cause more than a 1-2% loss in total portfolio value.

Short straddles can also contain early assignment risk, so be mindful of as it gets close to the expiration date. Also, watch out for earnings dates as stocks can make big moves following their announcement.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

*Disclaimer: On the date of publication, Steven Baster did not have (either directly or indirectly) positions in some of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, July 12, 2022.

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