Sell Straddle

Source: Short Straddle, pg. 123-125, Fontanills, G., trade options online

Usage: You are Neutral, i.e.., you expect Microsoft to remain where it is. Implied Volatility is high, you want to receive a high premium to sell a call and sell a put at the same time and at the same price. You feel future volatility will be lower, large premiums will offset market movements and time value decay will be in your favor.

Profits: Maximum profit occurs and all premium is retained ($1500) when MSFT at expiration equals the options strike price of 135. Break-even in graph can occur in either an up or down market change. Break-even occurs for MSFT near 150 and near 120 at expiration.

Losses: Losses are open ended and occur if market moves away from 135 in either direction and exceeds one of the break-even points at expiration. MSFT ends up at 149 at expiration and this trade just breaks even.

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Quoted profitModel profitQuoted PriceModel price Delta
(Shares)		GammaVegaTheta
No Quote $ 63.09 No Quote -14 3/8 -2.2 -4.4190 $-34.64 $ 18.07

Statistical Volatility Estimate For Probability Calcs: %

Days From TodayProb of ProfitExpected ProfitOdds of Success
13 61.5% $-72.88 0.7 to 1
26 55.4% $-200.78 0.6 to 1
Expiration 49.9% $-322.62 0.5 to 1

Green is current market conditions
X MSFT @
Quote = NQ, Model = 6 11/16, Delta = -51, IV = NQ, IV_EST = 40.3%, Volume = NQ, OI = NQ
MSFT @
Quote = NQ, Model = 7 11/16, Delta = 49, IV = NQ, IV_EST = 42.0%, Volume = NQ, OI = NQ