Stock Options

Saxo gives you access to trade the most liquid Stock Options in the most interesting markets covering the US, Europe and Asia-Pacific.

Prices to institutional clients are negotiable and dependant on volumes. Contact us to find out more.

Conditions for Stock Options

Client margin profiles and option strategies

Saxo operates with two margin profiles:

  • A basic profile which, by default, enables clients to buy options only – puts and/or calls.
  • An advanced profile for individually assessed clients which enables the client to do the same as the basic profile and to write (sell/short) options and receive margin benefits on option strategies (combinations of options and/or underlying positions).
 
For more information about margin requirement and margin reduction schemes, please refer to the sections Margin requirements and Margin reduction schemes below this section.
 
In case of a margin breach and stop-out is triggered, all option positions will be closed.
 
Details of the margin requirements and allowances for the advanced profile can be seen below:
​Strategy​Initial & maintenance margin

​Long straddle

Long strangle

​None

Out-of-the-money naked calls

Stock Options
Call Price + Maximum((X%* Underlying Price) - Out of the Money Amount), (Y% * Underlying Price))

Out-of-the-Money Amount in case of a Call option equals: Max (0, Option Strike Price - Underlying Future Price)

Example : short 1 DTE jan14 12.50 Call at 0.08
Spot at 12.30
(0.08*100shares)+((0.15*12.30)-(12.50-12.30)*100shares)

       8€ of premium + 164.5€ of margin

 

​Uncovered put write

Stock Options
Put Price + Maximum((X%* Underlying Price) - Out of the Money Amount), (Y% * Strike Price))

Out-of-the-Money Amount in case of a Put option equals: Max (0, Underlying Future Price – Option Strike Price)

Example: short 1 DTE jan14 12 Put at 0.06
Spot at 12.30
(0.06*100shares)+((0.15*12.30)-(12.30-12)*100shares)


   6€ of premium + 154.5€ of margin

 

​Bear call spread​(Maximum ((Strike Long Call - Strike Short Call), 0)

Example: short DTE Jan14 12.5 Call at 0.10 and long DTE Jan14 13.5 Call at 0.02
(0.10-0.02)*100 shares + (13.5-12.5)*100 shares

 

8€ of premium + 100€ of margin

​Bull put spread


 

​ Example: Short DTE Jan14 Put 12 Put at 0.08 and long DTE Jan14 11 Put at 0.02
(0.08-0.02)*100 shares + (12-11)* 100 shares   6€ of premium + 100€ of margin

Short straddle
​Short strangle

 

​ If Initial Margin Short Put > Initial Short Call, then
Initial Margin Short Put + Price Short Call
else
If Initial Margin Short Call >= Initial Short Put, then
Initial Margin Short Call + Price Short Put

Margin requirements

For certain instruments, including Stock Options, we require a margin charge to cover potential losses involved on holding a position in the instrument.
 
Stock Options are treated as full premium style options.
 
Full premium example:
When acquiring a long position in a full premium option, the premium amount is deducted from the client’s cash balance. The value from an open long option position will not be available for margin trading other than indicated in the margin reduction schemes.
 
In the following example, a client buys one Apple Inc. DEC 2013 530 Call @ $25 (Apple Inc. stock is trading at $529.85. One option equal 100 shares, buy/sell commissions $6.00 per lot and exchange fee is $0.30.
 
With a cash balance of $10,000.00, his account summary will show:

 
Cash and Position Summary

Position Value

1 * 25 * 100 shares =

$2,500.00

Unrealised Profit/Loss

 

--

Cost to Close

- 1* ($6 + $0.30) =

- $6.30

Unrealised Value of Positions

$2,493.70

 

 

Cash Balance

 

$10,000.00

Transactions not Booked

- ($2,500 + $6.30) =

- $2,506.30

Account Value

$9,987.40

 

 

Not Available as Margin Collateral

- 1 * 25 * 100 shares =

- $2,500.00

Used for Margin Requirement

 

--

Available for Margin Trading

$7,487.40

 

In case of a full premium option, the transactions not booked will be added to the client’s cash balance in overnight processing. The next day, when the options market has moved to $41 (spot at 556.50), the account summary will show:

 

Cash and Position Summary

Position Value

1 * 41 * 100 shares =

$4,100.00

Unrealised Profit/Loss

 

--

Cost to Close

- 1*($6+$0.30) =

-$6.30

Unrealised Value of Positions

$4,093.70

 

 

Cash Balance

 

$7,493.70

Transactions not Booked

 

--

Account Value

$11,587.40

 

 

Not Available as Margin Collateral

- 1 * 41 * 100 shares =

-$ 4,100.00

Used for Margin Requirement

 

--

Available for Margin Trading

$7,487.40

 

Position Value: Increased due to the price of the option being higher.

 

Unrealised Value of Positions: Increased due to the price of the option being higher.

 

Cash Balance: Reduced by the price of the option. ‘Transactions not Booked’ is now zero.

 

Account Value: Increased due to the price of the option being higher.

 

Not Available as Margin Collateral: Increased due to the new value of the position.

 

Short Option Margin

A short option position exposes the holder of that position to being assigned to deliver the underlying proceeds when another market participant who holds a long position exercises his option right. Losses on a short option position can be substantial when the market moves against the position. We will therefore charge premium margin to ensure that sufficient account value is available to close the short position and additional margin to cover overnight shifts in the underlying value. The margin charges are monitored in real time for changes in market values and a stop out can be triggered when the total margin charge for all margined positions exceeds the client’s margin call profile.
 
The generic formula for the short option margin charge is:
 
Short Option Margin = Premium Margin + Additional Margin
 
The premium margin ensures that the short option position can be closed at current market prices and equals the current Ask Price at which the option can be acquired during trading hours. The additional margin serves to cover overnight price changes in the underlying value when the option position cannot be closed because of limited trading hours.
 
Stock Options
For options on Stocks, the additional margin equals a percentage of the underlying reference value minus a discount for the amount that the option is out-of-the-money.
 
Additional Margin Call = Max (X% * Underlying Spot) – Out-of-the-Money Amount, Y% * Underlying Spot)
 
Additional Margin Put = Max (X% * Underlying Spot) – Out-of-the-Money Amount, Y% * Strike Price)
 
The margin percentages are set by Saxo and are subject to change. The actual values can vary per option contract and are configurable in the margin profiles. Clients can see the applicable values in the trading conditions of the contract.
 
The out-of-the-money amount for a call option equals:
 
Max (0, Option Strike – Underlying Spot)
 
The out-of-the-money amount for a call option equals:
 
Max (0, Underlying Spot Price – Option Strike)
 
To get the currency amount involved, the acquired values need to be multiplied with the trading unit (100 shares).
 
Example:
Let’s suppose FORM applied an X margin of 15% and a Y margin of 10% on Apple stocks.
 
A Client shorts an Apple DEC 2013 535 Call at $1.90 (Apple stock at 523.74). The option figure value is 100 shares. The OTM amount is 11.26 stock points (535 – 523.74), resulting in an additional margin of 67.30 stock points ($6,730). In the account summary, the premium margin is taken out of the position value:
 

 
Cash and Position Summary

Position Value

- 1 * $1.90 * 100 shares =

- $190.00

Unrealized Profit/Loss

 

--

Cost to Close

- (6 + $0.30) =

- $6.30

Unrealised Value of Positions

- $196.30

 

 

Cash Balance

 

$10,000.00

Transactions not Booked

$190 - ($6 + $0.30) =

$183.70

Account Value

$9,987.40

 

 

Not Available as Margin Collateral

 

--

Used for Margin Requirement

- 100 shares *( (0.15 * 523.74) – 11.26)

- $6,730.00

Available for Margin Trading

$3,257.40

Margin reduction schemes

Short option positions in American Style Options can be combined with long option positions or covering positions in the underlying deliverable to offset the high risk exposure. As such, the margin charges can be reduced or even waived. We will provide margin reduction on the following position combinations:
  • Covered Call
  • Call/Put Spread
  • Short Straddle

 

 

Covered Call

A short call position can be offset with a long position in the underlying stock.
 
Call / Put Spread
A spread position allows a long option position to cover for a short option position of an option of the same type, and same underlying deliverable. When the long option is deeper in the money compared to the short option (debit spread), the value of the long option is used up to the value of the short option for coverage with no additional margin to be required. 

When the short leg is deeper in the money compared to the long leg (credit spread), the full value of the long option is used for coverage plus an additional margin equal to the strike difference.
 
Note: To trade out of a spread position, it is recommended to first close the short leg before closing the long leg to avoid the high margin charge of the naked short option position. However, as the spread margin reservation might not be sufficient to cover the cash amount required to buy back the short option position, a client might find himself locked into a position that he cannot trade out of without additional funds being made available.
 
Short Straddle / Strangle
The short straddle / strangle rule is different compared to the Covered and Spread rules as the legs of the short straddle do not provide coverage for each other. A short straddle / strangle combines a short call with a short put. Since the exposure of the short call and short put are opposite in regard to market direction, only the additional margin of the leg with the highest margin charge is required.

When the call leg of the strangle position is assigned, the client needs to deliver the underlying stock. Vice versa, when the put is assigned, the client needs to take delivery of the underlying Stock. The long Stock can be combined with the remaining call leg of the original strangle, resulting in a covered call.

Commissions

Commissions

Prices to direct institutional clients are negotiatiable and dependant on volumes. Contact us to find out more.  

No Minimum Ticket Fees

When trading Stock Options at Saxo, there are no minimum ticket fees. Each trade is subject to a flat-rate fee based on the applicable volume bracket.

Tradable Instruments

Example of stock options available

Region

Exchanges

Stock Options

USA

CBOE

Bank of America Corp, Citigroup, Microsoft Corporation, Apple Inc, Ford Motor Co, Facebook Inc, Cisco, General Electric Co, Yahoo, The Walt Disney Company, McDonald’s Corp, Amazon, ...

 

 

 

Europe

Euronext Amsterdam

ING Group NV, Arcelomittal, Royal Dutch, Aegon, Unilever, ...

 

Euronext Paris

Axa SA, France Telecom, Societe Generale, BNP parisbas, GDF Suez, Vivendi, Carrefour, Total, LVMH, ...

 

Eurex

Deutsche Telekom, Commerzbank, E.on, Daimler, Deutsche Bank, SAP AG, RWE AG, Siemens AG, Allianz SE, Volkswagen AG, Adidas AG, ...

 

LSE

Vodafone Group PLC, Barclays, LLYODS banking Group PLC, BP PLC HSBC Holding PLC, TESCO PLC, ...

 

 

 

APAC

SEHK

China Construction Bank-H, Bank of China LTD-H, China Mobile, HSBC Holding PLC, China Life Insurance CO-H, ...

 

The above table is a subset of the available Stock Options. The full updated list is accessible in the platform.

Stock Options Strategies

Investor strategies

An Investor can use options to achieve a number of different things depending on the strategy the investor employs.
 
Novice option traders will be allowed to buy calls and puts, to anticipate rising as well as falling markets.

Buying Call or Long Call

The long call option strategy is the most basic option trading strategy whereby the options trader buys call options with the belief that the price of the stock will rise significantly beyond the strike price before the expiration date.
 
Leverage:
 
Compared to buying the underlying outright, the call option buyer is able to gain leverage since the lower priced calls appreciate in value faster percentagewise for every point rise in the price of the underlying.

However, call options have a limited lifespan. If the underlying stock price does not move above the strike price before the option expiration date, the call option will expire worthless.
 
 
Unlimited profit potential
 
Since there can be no limit as to how high the stock price can be at expiration date, there is no limit to the maximum profit possible when implementing the long call option strategy.
 
The formula for calculating profit is given below:
  • Maximum profit = Unlimited
  • Profit Achieved When Price of Underlying >=Strike Price of Long Call + Premium Paid
  • Profit = Price of underlying – Strike Price of Long Call – Premium Paid
Limited risk
Risk for the long call options strategy is limited to the price paid for the call option no matter how low the stock price is trading on expiration date.
 
The formula for calculating maximum loss is given below:
  • Max Loss = Premium Paid + Commissions Paid
    Max Loss Occurs when Price of Underlying <= Strike Price of Long Call

Breakeven point

The stock price at which breakeven is achieved for the long call position can be calculated using the following formula:
 
  • Breakeven Point = Strike Price of Long Call + Premium Paid

Bear Put Spread

The bear put spread option strategy is employed when the options trader thinks that the price of the underlying asset will go down moderately in the near term.

Bear put spreads can be implemented by buying a higher striking in-the-money put option and selling a lower striking out-of-the-money put option of the same underlying security with the same expiration date.

 
Bear Put Spread Construction
Buy 1 ITM Put
Sell 1 OTM Put
 
By shorting the out-of-the-money put, the options trader reduces the cost of establishing the bearish position but forgoes the chance of making a large profit in the event that the underlying asset price plummets.

 

 

Limited downside profit

To reach maximum profit, the underlying needs to close below the strike price of the out-of-the-money put on the expiration date. Both options expire in the money but the higher strike put that was purchased will have higher intrinsic value than the lower strike put that was sold. Thus, maximum profit for the bear put spread option strategy is equal to the difference in strike price minus the debit taken when the position was entered.

The formula for calculating maximum profit is given below:
 
  • Max Profit = Strike Price of Long Put – Strike Price of Short Put – Net Premium Paid – Commissions
  • Max Profit Achieved when Price of Underlying <= Strike Price of Short Put
Limited upside risk

If the stock price rise above the in-the-money put option strike price at the expiration date, then the bear put spread strategy suffers a maximum loss equal to the debit taken when putting on the trade.
 
  • Max Loss = Net Premium Paid + Commissions Paid
  • Max Loss Occurs when Price of Underlying >= Strike Price of Long Put

Breakeven point


The stock price at which breakeven is achieved for the bear put spread position can be calculated using the following formula:
 
  • Breakeven Point = Strike Price of Long Put – Net Premium Paid
 

Bull Call Spread

The bull call spread option strategy is employed when the options trader thinks that the price of the underlying asset will go up moderately in the near term.

Bull call spreads can be implemented by buying an at-the-money call option while simultaneously writing a higher striking out-of-the-money call option of the same underlying and the same expiration month.
Bull Call Spread Construction
Buy 1 ATM Call
Sell 1 OTM Call
 
By shorting the out-of-the-money call, the options trader reduces the cost of establishing the bullish position but forgoes the chance of making a large profit in the event that the underlying asset price skyrockets.
 
Limited upside profits
Maximum gain is reached for the bull call spread options strategy when the underlying price moves above the higher strike price of the two calls and its equal to the difference between the price strike of the two call options minus the initial debit taken to enter the position.
 
The formula for calculating maximum profit is given below:
  • Max Profit = Strike Price of Short Call – Strike Price of Long Call – Net Premium Paid – Commissions Paid
  • Max Profit Achieved when Price of Underlying >= Strike Price of Short Call

Limited downside risk
The bull call spread strategy will result in a loss if the underlying price declines at expiration. Maximum loss cannot be more than the initial debit taken to enter the spread position.

The formula for calculating maximum loss is given below:
 
  • Max Loss = Net Premium Paid + Commissions Paid
  • Max Loss Occurs when Price of Underlying <= Strike Price of Long Call

Breakeven point
The stock price at which breakeven is achieved for the bull call spread position can be calculated using the following formula:
 

  • Breakeven Point = Strike Price of Long Call + Net Premium Paid
 

Covered calls

The covered call is a strategy in options trading whereby call options are written against a holding of the underlying security.
 
Covered Call (OTM) construction
Long 100 shares
Sell 1 Call
 
Using the covered call option strategy, the investor gets to earn a premium writing calls while at the same time appreciate all benefits of underlying stock ownership, such as dividends and voting rights, unless he is assigned an exercise notice on the written call and is obliged to sell his shares.
 
However, the profit potential of covered call writing is limited as the investor has, in return for the premium, given up the chance to fully profit from a substantial rise in the price of the underlying asset.
 
Out-of-the-money covered call
This is a covered call strategy where the moderately bullish investor sells out-of-the-money calls against a holding of the underlying shares. The OTM covered call is a popular strategy as the investor gets to collect premium while being able to enjoy capital gains if the underlying stock rallies.
 
 
Limited profit potential
In addition to the premium received for writing the call, the OTM covered call strategy’s profit also includes gain if the underlying stock price rises, up to the strike price of the call option sold.
The formula for calculating maximum profit is given below:
  • Max Profit = Premium received – Purchase Price of the Underlying + Strike Price of Short Call – Commissions Paid
  • Max Profit Achieved when Price of Underlying>= Strike Price of Short Call


Unlimited loss potential
Potential losses for this strategy can be very large and occurs when the price of the stock falls. However, this risk is no different than that which the typical stock owner is exposed to. In fact, the covered call writer’s loss is cushioned slightly by the premiums received for writing the calls.


The formula for calculating loss is given below:
 

  • Maximum loss = Unlimited
  • Loss Occurs when Price of Underlying < Purchase Price of Underlying – Premium Received
  • Loss = Purchase Price of Underlying – Price of Underlying – Max Profit + Commissions Paid

Breakeven point
The stock price at which breakeven is achieved for the covered call (OTM) position can be calculated using the following formula:
 

  • Breakeven Point = Purchase Price of Underlying – Premium Received
 

Long Put

The long put option strategy is a basic strategy in options trading where the investor buys put options with the belief that the price of the underlying will go significantly below the strike price before the expiration date.
 
Compared to short-selling the underlying, it is more convenient to bet against an underlying by purchasing put options. The risk is capped to the premium paid for the put options, as opposed to unlimited risk when short-selling the underlying outright.

 

Unlimited potential
Since the stock price, in theory, can reach zero at the expiration date, the maximum profit possible when using the long put strategy is only limited to the strike price of the purchased put less the price paid for the option.
 
The formula for calculating profit is given below:
  • Maximum Profit = Unlimited
  • Profit Achieved when Price of Underlying = 0
  • Profit = Strike Price of Long Put – Premium Paid

Limited risk
Risk for implementing the long put strategy is limited to the price paid for the put option no matter how high the underlying price is trading on expiration date.


The formula for calculating maximum loss is given below:
 

  • Max Loss = Premium Paid + Commissions Paid
  • Max Loss Occurs when Price of Underlying >= Strike Price of Long Put
Breakeven point
The underlying price at which breakeven is achieved for the long put position can be calculated using the following formula:
 
  • Breakeven Point = Strike Price of Long Put – Premium Paid

Long Straddle

The long straddle is a neutral strategy in options trading that involves the simultaneous buying of a put and a call of the same underlying asset, strike price and expiration date.
 
Long straddle construction
Buy 1 ATM Call
Buy 1 ATM Put
 
Long straddle options are unlimited profit/limited risk options trading strategies that are used when the options trader thinks that the underlying asset will experience significant volatility in the near term.

Long Strangle

The long strangle, is a neutral strategy in options trading that involves the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying asset and expiration date.
 
Long Strangle Construction
Buy 1 OTM Call
Buy 1 OTM Put
 
The long options strangle is an unlimited profit/limited risk strategy used when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.

 

 

Unlimited profit potential
A large gain for the long strangle option strategy is attainable when the underlying stock price makes a very strong move either upwards or downwards at expiration.
 
The formula for calculating profit is given below:
  • Maximum Profit Unlimited
  • Profit Achieved when Price of Underlying > Strike Price of Long Call + Net Premium Paid or Price of Underlying < Strike Price of Long Put – Net Premium Paid
  • Profit = Price of Underlying – Strike Price of Long Call – Net Premium Paid or Strike Price of Long Put – Price of Underlying – Net Premium Paid
Limited risk
Maximum loss for the long strangle options strategy is hit when the underlying stock price on expiration date is trading between the strike prices of the options bought. At this price, both options expire worthless and the options trader loses the entire initial debit taken to enter the trade.
 
The formula for calculating maximum loss is given below:
  • Max Loss = Net Premium Paid + Commissions Paid
  • Max Loss Occurs when Price of Underlying is in between Strike Price of Long Call and Strike Price of Long Put
Breakeven points
There are two breakeven points for the long strangle position. The breakeven points can be calculated using the following formula:
  • Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
  • Lower Breakeven Point = Strike Price of Long Put – Net Premium Paid

Naked Call Writing

The naked call write is a risky options trading strategy where the options trader sells calls against stock which he does not own. Also known as uncovered call writing.
 
The out-of-the-money naked call strategy involves writing out-of-the money call options without owning the underlying stock. It is a premium collection options strategy employed when one is neutral to mildly bearish on the underlying.

 

 

Limited profit potential
Maximum gain is limited and is equal to the premium collected for selling the call options.
The formula for calculating maximum profit is given below:
  • Max Profit = Premium Received – Commissions Paid
  • Max Profit Achieved when Price of Underlying <= Strike Price of Short Call
Unlimited loss potential
If the underlying price goes up dramatically at expiration, the out-of-the-money naked call writer will be required to satisfy the options requirements to sell the obligated underlying to the options holder at the lower price, buying the underlying at the open market price. Since there is no limit to how high the underlying price can be at expiration, maximum potential losses for writing out-of-the-money naked calls is therefore theoretically unlimited.
 
The formula for calculating loss is given below:
 
  • Maximum Loss = Unlimited
  • Loss Occurs when Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying – Strike price of Short Call + Premium Received + Commissions Paid
Breakeven point
The stock price at which break-even is achieved for the naked call (OTM) position can be calculated using the following formula:
  • Breakeven Point = Strike Price of Short Call +Premium Received

Risk Reversal

A risk reversal, or collar,is an option strategy that is constructed by holding shares of the underlying stock while simultaneously buying protective puts and selling call options against the holding. The puts and the calls are both out-of-the-money options having the same expiration month and must be equal in number of contracts.
 
Risk Reversal Strategy Construction
Long 100 shares
Sell 1 OTM Call
Buy 1 OTM Put
 
Technically, the risk reversal strategy is the equivalent of an out-of-the-money covered call strategy with the purchase of an additional protective put.

The risk reversal strategy is a good strategy to use if the options trader is writing covered call to earn premium but wishes to protect himself from an unexpected sharp drop in the price of the underlying asset.

 

 
Limited profit potential
The formula for calculating maximum profit is given below:
  • Max Profit = Strike Price of Short Call – Purchase Price of Underlying + Net Premium Received – Commissions Paid
  • Max Profit Achieved when Price of Underlying >= Strike Price of Short Call
Limited risk
The formula for calculating maximum loss is given below: 
  • Max Loss = Purchase Price of Underlying – Strike Price of Long Put – Net Premium Received + Commissions Paid.
  • Max Loss Occurs when Price of Underlying <= Strike Price of Long Put
Breakeven point
The stock price at which breakeven is achieved for the risk reversal strategy position can be calculated using the following formula:
  • Breakeven Point = Purchase Price of Underlying + Net Premium Paid

Uncovered Put Write

Writing uncovered puts is an options trading strategy involving the selling of put options without shorting the obligated underlying. Also known as a naked put write or cash secured put, this is a bullish options strategy that is executed to earn a consistent profit by ongoing collection of premium.
 
Uncovered Put Write Construction
Sell 1 ATM Put

 

 

Limited profits with no upside risk
Profit for the uncovered put write is limited to the premiums received for the options sold.

The naked put writer sells slightly out-of-the-money puts month after month, collecting premiums as long as the stock price of the underlying remains above the put strike price at expiration.
 
  • Max Profit = Premium Received – Commissions Paid
  • Max Profit Achieved when Price of Underlying >= Strike Price of Short Put
Unlimited downside risk with little downside protection
While the premium collected can cushion a slight drop in the underlying price, loss resulting from a catastrophic drop in the price of the underlying can be huge.
 
The formula for calculating loss is given below:
 
  • Maximum Loss = Unlimited
  • Loss Occurs when Price of Underlying < Strike Price of Short Put – Premium Received
  • Loss = Strike Price of Short Put – Price of Underlying – Premium received + Commissions Paid
Breakeven point
The stock price at which breakeven is achieved for the uncovered put write position can be calculated using the following formula:
  • Breakeven Point = Strike Price of Short Put – Premium Received

Short Straddle

The short straddle or naked straddle sale is a neutral options strategy that involves the simultaneous selling of a put and a call of the same underlying stock, strike price and expiration date.

Short straddles are limited profit/unlimited risk options trading strategies that are used when the options trader thinks that the underlying security will experience little volatility in the near term.
 
Short Straddle Construction
Sell 1 ATM Call
Sell 1 ATM Put
 
 
Limited profit
Maximum profit for the short straddle is achieved when the underlying stock price on expiration date is trading at the strike price of the options sold. At this price, both options expire worthless and the options trader gets to keep the entire initial credit taken as profit.
 
The formula for calculating maximum profit is given below:
  • Max Profit = Net Premium Received
  • Max Profit Achieved when Price of Underlying = Strike Price of Short Call/Put
Unlimited risk
Large losses for the short straddle can be incurred when the underlying price makes a strong move either upwards or downwards at expiration, causing the short call or the short put to expire deep in the money.

The formula for calculating loss is given below:
 
  • Maximum Loss = Unlimited
  • Loss Occurs when Price of Underlying > Strike Price of Short call + Net Premium Received or Price of Underlying < Strike Price of Short Put – Premium Received.

Breakeven points
There are two breakeven points for the short straddle position. The breakeven points can be calculated using the following formula:
 
  • Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
  • Lower Breakeven Point = Strike Price of Short Put – Net Premium Received 

Short Strangle

The short strangle option strategy is a limited profit/unlimited risk options trading strategy that is used when the options trader thinks that the underlying stock will experience little volatility in the near term.
 
 
Short Strangle Construction
Sell 1 OTM Call
Sell 1 OTM Put
 
Limited profit
Maximum profit for the short strangle occurs when the underlying stock price on expiration date is trading between the strike prices of the options sold. At this price, both options expire worthless and the options trader gets to keep the entire initial credit taken as profit.

The formula for calculating maximum profit is given below:
  • Max Profit = Net Premium Received
  • Max Profit Achieved when Price of Underlying is in between the Strike Price of the Short Call and the Strike Price of the Short Put

Unlimited risk
Large losses for the short strangle can be experienced when the underlying stock price makes a strong move either upwards or downwards at expiration.


The formula for calculating loss is given below:  

  • Maximum Loss = Unlimited
  • Loss Occurs when Price of Underlying > Strike Price of Short Call + Net Premium Received or Price of Underlying < Strike Price of Short Put – Net Premium Received
  • Loss = Price of Underlying – Strike Price of Short Call – Net Premium Received or Strike Price of Short Put – Price of Underlying – Net Premium Received
Breakeven points
There are two breakeven points for the short strangle position. The breakeven points can be calculated using the following formula:
  • Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
  • Lower Breakeven Point = Strike Price of Short Put – Net Premium Received