Short straddles with zero delta

Wil short straddles with low or zero delta have a better chance of profit even if there is a breakout above or below the breakeven points?

 

No, they're no longer zero delta. You've answered your own question.

 

Thanks atticus. Won't premium erosion be less with a lower or zero delta if there is a breakout on either side?

 

No, you'll receive less premium for selling the neutral straddle. Upside index straddles can be cheaper, but let's assume a flat skew. Regardless, the BE at expiration is a function of premium received. Theta is greatest at the strike [neutrality], but there is no memory.

 

"Theta is greatest at the strike [neutrality], but there is no memory."

Thanks attticus. That cleared it up.

 

Glad to help.

 

is it most sensitive to movement too?

 

I'm a bit confused by your question and I'm probably going to make things worse

If the underlying of your delta neutral (DN) straddle moves right away, you're in the loss area right away. Because it started DN, the loss area is symmetrical, eg., a 4 pt move up results in the same $$ loss as a 4 pt move down.

If there's some passage of time before the move, the P&L area becomes asymmetrical because of the effect of time decay on the respective options. In that case, there would be less loss to the upside than for an equal move to the downside.