Why maximum gain of short straddle strategy is C+P?
For example if price falls to 0, my gain will be when the buyer of P will excercise the option and I will receive X of P in addition to C+P
So it should be C+P+X. But it’s not. Why the hell?
You’re short on both C and P, which are opposite positions. You’re betting for low volatility / sideway movement of the stock. If the stock moves away from X in either direction, you’re going to start losing money. If the stock goes to zero, you’ve lost a lot of money.
You can only gain on the premium minus the movement of the stock away from X.
If the stock goes to 0, being that you sold the put, you have the obligation to buy the stock at X even though its worth 0. The holder of the option has the right to sell the stock to you at X.