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neutral strategies
Short Straddles
Analyzing the risk profile of a short straddle
Long Straddles
Let's also take a quick look at what happens when we a straddle instead of selling it:
Much like long options, the enticing attribute of long straddles is that you can potentially make unlimited profit with limited risk (the most you can lose is the amount you pay for it). The problem with this strategy is that the share price would need to have a fairly sizable move just to break even. All the while, extrinsic value will decay as time passes (and if volatility contracts) causing the likelihood of profit to shrink. Correctly timing a large move in any is extremely difficult. As an added wrench in the strategy, whenever a large move is expected by the market, the option prices get much more expensive. That means you would have to pay an especially high price to buy a straddle in any product where a large move is expected. This is not a strategy I personally use because the probability of profit is too low for my taste. For the sake of knowledge, however, it is worth mentioning.