Why is selling a straddle "short volatility"?
Asked at Akuna, Optiver
A stock trades at . You sell the -strike call and the -strike put (same expiry), collecting \8$ total premium.
Describe your P&L at expiry. Why is this position called "short volatility"? What are your risks as the stock moves before expiry?
Show a hint
Draw the payoff: what do you owe at expiry as a function of the final stock price ?
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.