Straddle

A straddle is an options position that combines a call and a put at the same strike price and the same expiry — bought together (long straddle) to profit from a large move in either direction, or sold together (short straddle) to profit when the underlying stays near the strike. In Indian index options the short straddle is the workhorse: sell the at-the-money call and put, collect both premiums, and let theta decay work while the index stays in a range.

Example

NIFTY trades at 25,000. A trader sells the 25,000 call for ₹120 and the 25,000 put for ₹110 — a combined premium of ₹230, or 230 × 75 = ₹17,250 credit per lot. The position profits at expiry if NIFTY settles between roughly 24,770 and 25,230 (strike ± combined premium), with maximum profit exactly at 25,000. Beyond either break-even, losses grow point-for-point without limit, which is why systematic sellers add a stop — commonly a combined-premium stop-loss: exit both legs if the combined premium rises from ₹230 to, say, ₹345 (1.5×). Hypothetical figures; short straddles carry unlimited-loss tail risk and margin requirements apply.

Why it matters

The straddle is where discretionary option selling most needs rules: entry time, strike selection, stop style (per-leg versus combined premium) and exit time each change results materially, and popular setups like a 9:20 am short straddle are entirely parameter-driven. That makes it a natural candidate for backtesting across years of expiries — including the high-VIX weeks that punish it — rather than judging it on a few calm months.

In INDfolio AI, multi-leg positions like straddles can be defined and tested leg-by-leg on NSE options data — see Options backtesting.