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It refers to the kind of neutral position strategy platform where the investor gains through the passage of time.
Such options involve work with truly undefined risks and the investor may have to focus on certain probabilities at trade entry points to find stocks to ensure the risk / reward remains at a logical level.
The factor implies that volatility can be synchronized to strike selections where higher risks get higher credits on selling.
The trade of short straddle may involve the combination of writing bearish or uncovered calls and putting it with the same strike rate and expiration.
It involves collecting two up front premiums and building a larger margin for errors by comparing the writing - just a call or put option where the risks are substantial on the downside and unlimited on the upside, in conditions of large moves.
It may involve selling a call and a put with the same expiration and strike price to gain profits from the stock price and volatility. The aim is to earn through the sale of premiums.
The maximum risk in such strategies is unlimited where worst can happen in case the stock rises to infinity and falls to zero.
Maximum loss - When the price is higher than the call strike, the investor is assigned and obligated to sell at stroke rate and buy it in the market, but if the price is lower than the put strike, the investors will be obligated to buy at the strike rate, not considering the market price.
Maximum Gain – The gains are limited to the premium received and the best can happen at expiration at the strike price. But mostly such short options expire valueless.
In most cases, the potential profits in alternative investment strategy are restricted and short may end up in termination or closing at the strike rate. The option is not considered positive in case of higher unpredictability.
The breakeven is the strike price +/ - the total premium collected. It is not considered positive in case of instable market conditions.
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