Involves selling a put option and a call option with the same strike price and expiration date, and buying the underlying asset. This creates a synthetic position that is similar to a traditional short straddle, but uses put options instead of call options.
Description
is to profit from a decrease in volatility or a narrow trading range in the underlying security. If the underlying security remains relatively stable and doesn’t experience significant price fluctuations, the put options that have been sold will expire worthless, and the trader can keep the premium collected from selling the options. If the underlying security does experience significant price movements, the trader may incur losses, potentially unlimited if the price moves significantly in either direction.
It’s important to note that a synthetic short straddle with puts is a relatively advanced options trading strategy and may not be suitable for all investors. It is important to thoroughly understand the risks and potential rewards of this strategy before implementing it in a portfolio.
Breakeven
the strike price of the options plus the premium collected from selling the options.
Sweetspot
Stock price either remains flat
Max profit
is limited. Equal to the premium collected from selling the put options
Max loss
Unlimited as stock either goes way up or down.