Strategy

Short straddle

Sell an at-the-money call and an at-the-money put. You collect two premiums and lose if the index moves far either way. The loss is not capped.

View: neutralCredit (you receive)Unlimited risk

How it is built

  • Sell 1 lot of the at-the-money call.
  • Sell 1 lot of the at-the-money put, same strike and expiry.

A structure for a view that the index will barely move until expiry. It carries unlimited risk on the upside and very large risk on the downside.

Risks

  • There is no maximum loss on the call side; a gap move can cost many times the premium collected.
  • Margin requirements are high and rise when the market moves.
  • Extra margin applies on the expiry day.
  • Selling options needs margin set by the exchange (SPAN plus exposure margin), usually far more than the premium received.

How the Greeks behave

Delta
Close to zero at the start, but changes fast (high negative gamma)
Theta
Strongly positive
Vega
Strongly negative

Worked example on Nifty 50

Illustrative example: Nifty 50 at 25,000, 7 days to expiry, IV 14%, lot size 65
LegPremium per unitCash flow
Sell 1 lot 25,000 CE₹209.21+₹13,599
Sell 1 lot 25,000 PE₹178.07+₹11,575
Net received
₹25,173
Max profit
₹25,173
Max loss
Unlimited
Break-evens
24,613 / 25,387

Profit and loss at expiry

For the whole position, before charges.

Strike 25,000BE 24,613BE 25,38723,00027,000

Premiums are theoretical Black–Scholes values from round, illustrative inputs, not market prices. Charges and margin are not included.Price a single leg with your own numbers.

Short straddle on other indices

Frequently asked questions

Is a short straddle risky?

Yes. The profit is capped at the premium received, while the loss is unlimited on the upside and can be very large on the downside.

How much margin does a short straddle need?

Margin for two naked short options, often several lakh rupees per lot on index options. It changes with volatility; check your broker's margin calculator.

How can the risk be capped?

Buying a call above and a put below turns it into an iron butterfly, with a known maximum loss.

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