Short straddle is the most used options strategy by many of the options traders.
This short-straddle options trading strategy is nothing but shorting both the money call and put option of the same expiry and that too at the same time.
However, the short straddle option strategy will contain a lot of risk because the traders sell both at the money options.
When the market moves in either direction due to momentum, there is a high probability that your short straddle could result in a loss.

Adjustments are important in a short-straddle options strategy

Often traders will initiate this strategy, and when the market moves in either direction, they will either book a loss with the fear of losing more money or some of the traders will keep on holding the same trade in the hope of making a profit.
Both of these approaches are considered to be totally wrong.
You should adjust your short straddles when the market starts to move in either direction with the momentum.

Use long ranges to minimize the risk

If you are a fan of a long range, then you can create a long-term short straddle that will also offer you bigger ranges and will eventually give a bigger breakeven.
You can also take the positions in the later-dated options, such as 3 months, 6 months, and 1 year.
On the other hand, the only problem that you may face while initiating the later-dated short straddle is the liquidity problem.
The long-term options have less liquidity in them, and due to this, there may be a huge slippage while initiating any short straddle.

Adjustments are very important in this short-straddle strategy, but if you are doing over-adjustments, then it will lead to a loss.
Firstly, a short straddle will quickly go into the loss if you try to adjust too fast and too quickly.
Thus, it is very important to learn when to adjust the short straddles.
Every trader will have his own adjustment theory, which will come with experience.
Also, there is no such fixed formula for the same.
Some traders will prefer to adjust only when it will touch the breakeven, whereas some will adjust at a smaller distance itself.
Some traders might even want to skip the entire process by setting up a specific percentage of stop loss on both sides.
Making adjustments to your existing short straddle will require additional funds, so in that case you are required to have additional funds for additional adjustments.

There are several different ways through which you can adjust the short straddle.

Some of the common ways are as follows:

Taking additional credit will mean shifting your winning side closer to the spot price so as to collect the additional premium from out-of-the-money options.

In this method, the losing side will be squared off, and hence we will book a temporary loss on that side.
We will also shift the losing leg away from the spot in order to incentivize the breakeven on that particular side.

This is the best way to initiate the short-straddle trading strategy and adjust it according to the market movements.

Q1) Is short straddle really profitable?

Short straddle is really profitable, as traders will benefit by collecting the premium as profit.

Q2) Is short straddle bullish?

Short straddles are typically bullish strategies.

Q3) What is a 9/20 am trading strategy?

This strategy involves selling a call and a put option with the same strike price and expiration date at 9:20 AM.

Q4) What is the No. 1 rule of trading?

Always use a trading plan is the No. 1 rule of trading.

Q5) Is straddle always profitable?

The strategy is only profitable when the stock will either rise or fall from the strike price by more than the total premium paid.

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