Selling Straddles

Selling straddle is the exact opposite of buying a straddle. Instead of buying a call and put option at the same strike price, the investor instead sells a call and put option the same strike price. 

When selling a put, you profit when the price is above the break even price (strike-premium collected). When selling a call, you profit when the price is below the break even price (strike-premium collected). When selling a straddle therefore, you profit when the price is above the call break even price and below the put break even price. 

Price is above the put break even price and below the call break even price: Profit! Maximum profit is at the strike price. Therefore, when selling a straddle you are under the impression that the price will be at the strike price by expiration.

Price is not within the aforementioned range: Loss. Unlike buying a straddle, when selling a straddle there is an unlimited amount of loss. 

Advanced Tips: 

• Sell a straddles only when the IV is high and profit by buying it back when the IV collapses.  Environments around binary events such as major news announcements or earnings release are ideal for selling strangles
• Close straddles at 25% profit helps long term profitablity of the portfolio. Example, if you sell a straddle for $2.00, you ought to take profits when you can buy the straddle back for $0.50 and deploy the capital for some other trade
• Closing straddles at 200% loss helps limit the deep drawdowns in your portfolio. Example, if you sell straddle for $2.00, you ought to close it if you can for $6.00 and move on to next trade. If you can't, you can roll to next option cycle or go inverted and gain duration/time for your trade to be right