• Skip to primary navigation
  • Skip to content
  • Skip to footer
StoneX®

Trade Futures, Spreads and Options with Confidence.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • Technical Ag Knowledge
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • CME Group Offers
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • Apply
    • Access My Account
    • Funding
  • Contact
 

Trading Sideways Markets: Selling Short Straddles

September 18, 2018 by Jacob Swart| Ag Marketing

What are you doing in a low volatility, sideways trading market?  Are you sitting on your hands and “waiting it out”?  Or are you taking advantage of the opportunity at hand?  Did you even know there’s a way to trade a sideways market?  I know many people will simply sit and wait when prices are just trading sideways without much of a trading range.  They believe that there’s really no way to use the lack of volatility in their favor, but there’s actually very much a way to do exactly that.  It’s called a ‘short straddle’, and it’s what many speculators and producers alike use at certain times of year to take advantage of a sideways market.

Now I’m sure you’re wondering, what is a short straddle?

Before we can talk about exactly what a ‘short’ straddle looks like, we need to nail down the definition of a straddle.  A straddle involves buying (or selling) an at the money put and also buying (or selling) an at the money call simultaneously.  To put it plainly, if corn is trading at $3.50, then a straddle would involve either buying or selling a $3.50 put and a $3.50 call simultaneously.  Expanding that to a ‘short’ straddle is rather simple, it just means that you’re selling an at the money put and selling an at the money call together.  So, in the example I outlined above, you’re selling a $3.50 put and selling a $3.50 call.

How exactly does this work in your favor if the market trades sideways?  Well, when you sell the put and call to the market, you will be paid the premium for the options.  If the price stays right around that $3.50 price, then the time value will be deteriorating as the days pass.  When you buy an option, as I’m sure you know, the time value works against you.  However, when you sell options, the time value works for you because there becomes less and less time for the option to move into the money.  To put it plainly, you want the price of the underlying futures contract to go nowhere and finish right at the strike price of the put and call.  But if it doesn’t, then you can still end up with a profitable trade, depending on how far away from that strike price it is.

Let’s look at that example:

Say you sell the $3.50 put for 10 cents and sell the $3.50 call for 10 cents.  The market’s going to pay you 20 cents up front to sell that straddle.  At the time of expiration, if the price is at $3.50, then you’ll get to keep all 20 cents, which is the optimal outcome.  If it doesn’t finish right at $3.50, then you’re still going to be profitable if the price finishes within 20 cents of that number.  If it finishes at say, $3.60, then the put will expire out of the money and the call will expire 10 cents in the money.  In that case, you still finish with a 10 cent profit, which is the 20 cents you were paid initially less the 10 cents you lost on the call option.

Obviously, there’s risk with selling options, and if the price swings severely, then you could lose money on the trade.  That’s why one of the keys to a position like this is to keep a close eye on it.  Now if you prefer to sit and wait out a sideways market, then by all means, don’t do anything in these situations.  But, if you’d rather take advantage of an opportunity and use the sideways markets to your advantage, then short straddles are the answer.

Filed Under: Ag Marketing

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

StoneX Financial Inc.
Daniels Trading Division
230 South LaSalle Suite 10-500
Chicago, IL 60604
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot
Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top