Short Straddle Screener Results For August 17th

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 August 17th:

The screener shows some interesting short straddle trades on popular stocks such as T, AMC, SDC, AAPL, NKLA, REV, INTC, FUBO, JNJ, KO, NFLX, AMD, GOOGL, C and TSLA. 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 AT&T.

Using the August 26 expiry, the trade would involve selling the 18.50 strike call and the 18.50 strike put. The premium received for the trade would be $43 which is also the maximum profit. The maximum loss is theoretically unlimited. The lower breakeven price is 18.07 and the upper breakeven price is 18.93. The premium received is equal to 2.32% which is lower than some of the other examples due to AT&T being a low volatility stock. The probability of success is estimated at 59.1%.

The Barchart Technical Opinion rating is a 24% Sell with a weakest short term outlook on maintaining the current direction.

AMC Short Straddle Example

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

Also using the August 19 expiry, the trade would involve selling the 25 strike call and the 25 strike put. The premium received for the trade would be $328 which is also the maximum profit. The maximum loss is theoretically unlimited. The lower breakeven price is 21.72 and the upper breakeven price is 28.28. The premium received is equal to 13.22% of the stock price, much higher than the AT&T example. The probability of success is estimated at 58.6%.

The Barchart Technical Opinion rating is a 24% Buy with a weakening short term outlook on maintaining the current direction. 

AAPL Short Straddle Example

Let’s take a look at one final straddle using Apple, the seventh line item. 

Using the September 2 expiry this time, the trade would involve selling the 172.50 strike call and the 172.50 strike put. The premium received for the trade would be $669 which is also the maximum profit. The maximum loss is theoretically unlimited. The lower breakeven price is 165.81 and the upper breakeven price is 179.19. The premium received is equal to 3.87%. The probability of success is estimated at 58.1%.

The Barchart Technical Opinion rating is a 40% Buy 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, Gavin McMaster 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, August 16, 2022.

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