A short straddle is a neutral options strategy in which the trader simultaneously sells an at-the-money call option and an at-the-money put option on the same underlying asset, with the same strike price and expiry date — collecting the combined premium from both sales as the maximum profit. The strategy profits when the underlying price remains close to the strike price at expiry — allowing both options to expire worthless and the seller to retain the full premium received. The maximum profit equals the total premium collected, while the risk is theoretically unlimited on the upside (if the underlying rises sharply) and substantial on the downside (if it falls sharply below the break-even point). Break-even points are: Strike + Net Premium (upper) and Strike – Net Premium (lower). In Indian F&O markets, short straddles on Nifty 50 and Bank Nifty weekly options are among the most popular income-generating strategies — particularly when India VIX is elevated (making options expensive) and the market is expected to remain range-bound into expiry. The key risk is a large unexpected directional move — triggered by an RBI policy surprise, global risk-off event, or major corporate news — that causes one leg of the straddle to move deeply in the money, generating losses that far exceed the premium collected.
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