If you sell a call and put at the same strike price, that is a straddle. When you sell a straddle, you are betting against volatility. You make money if the stock does not move very much. You want the stock to just sit there and do nothing, so that both the put and the call expire worthless, and you keep the premium you collected from both. It is unlikely that both will expire worthless. But if the stock closes very near the strike, then the premiums you got from selling both will be more than what you need to spend to close the option that is in the money. The potential loss has no limit. The stock could go up 500%. You are naked short a call, and that could bankrupt you. If you buy the call and sell the put, then that is a synthetic, and it simulates holding the stock. There is a lot of downside risk. The market could crash, and you are short a naked put. You can be forced to buy 100 shares at 514, but you will only be able to sell them at, say, 450. Or 400. Or 350. Or whatever happens to the S&P 500 index if Putin drops a nuclear weapon on Ukraine. These are not positions to fool around with if you don't fully understand how options work. You can lose more than all the money in your account, and the broker can sue you. I'm not trying to scare you LOL I'm just telling you how these things work. If you just buy a call option--and stop there--the most you can lose is what you paid for the option. And that is a bet that the stock will go up. And a much more sane way to begin learning about options.
It's unclear which options strategy you exactly mean. You should always use an options analysis tool. Since the title says "What is the max risk on a straddle???", then study these straddles: https://optioncreator.com/short-straddle https://optioncreator.com/long-straddle You can learn reading such a PnL chart the easiest by concentrating on just the expiration date (ie. the orange line). The chart shows you all possible outcomes (ie. for any underlying stock price). Remember: at expiration only the underlying stock price decides about the outcome, volatility (IV) does not play any role anymore... As the PnL charts show, short straddle is riskier than long straddle. This can be seen by comparing the MaxRisk of both strategies... A similar strategy like short straddle, but with much less risk is the long butterfly: https://optioncreator.com/long-butterfly It can be constructed in a number of ways (using only calls, using only puts, or using both), and the resulting strategies differ primarily in being either credit or debit ones. And: there are also formulas for calculating important metrics like NetPremium, MaxPnL, MinPnL, B/E point(s) etc. Just look up in a hardcore options book with much maths and formulas in it. Also the following site has good info and formulas: https://www.macroption.com/option-butterfly-strategies/
@Robert Morse is right. This is not a hedge with "limited risk". This is a long position with no protection for the downside but with cost reduction via the premiums earned by selling of puts. The max risk is SPY going all the way to zero where you would've lost all of the premiums that you paid to buy the calls plus the losses from the assignment of the short puts, so double the loss when SPY goes down.
Here you can find the formulas for margin requirements for all the various options strategies: https://www.tradestation.com/pricing/options-margin-requirements/ FYI: some strategies (especially spreads and others with capped risk, like LongButterfly) require much less margin (b/c the risk is capped, ie. limited).
Looks like you are long the synthetic, not sure why. Buy the Spy.. Sort of hard to believe you have an 83 % hit rate on verts and asking the questions you are.
When you're doing a straddle strategy by picking up both a call and a put option at the same price, like your $514 for SPY, it's a bit different than selling any of them, which you mentioned. Normally, with a straddle, you're not selling options; you're buying both to cover both directions the market might go. In the classic straddle game where you buy both the call and put, the most you can lose is the total cash you spent on these options. So, if SPY doesn't really move up or down enough, the worst that happens is you lose what you paid for those options to start with.