A short straddle is an options strategy carried out by holding a short position in both a call and a put that have the same strike price and expiration date. The maximum profit is the amount of premium collected by writing the options. Short straddles are limited profit, unlimited risk options trading strategies that are used when the options trader thinks that the underlying securities will experience little volatility in the near term.
Because KR rocketed from about $20 to $28 in just a few months, I'm betting that the share price isn't going to do much over the next 4 months. So I:
Sold 1 KR Put Apr 20 '18 $28 @ $2.10 ($11.20 commission + $0.01 SEC Fee)
Sold 1 KR Call Apr 20 '18 $28 @ $1.95 ($11.20 commission + $0.01 SEC Fee)
My net premium on the Put is $183.79 and my net premium on the Call is $198.79, for a total of $382.58.
On April 20th, 2018, if shares of KR trade between $25.90 ($28 - $2.10) and $29.95 ($28 + $1.95), the options will likely expire worthless and I will get to keep the $382.58.
If I am put 100 shares @ $28.00, I will actually end up paying $28.00 - $3.83 (options premiums) = $24.17. My cost basis for my 522 shares of KR is $21.33, and adding another 100 at $24.17 wouldn't be so bad.
If I am called 100 shares @ $28.00, I will actually end up selling my shares at $28.00 + $3.83 (options premiums) = $31.83. I will have held the shares for 7 months and made 49% plus a small dividend, ((($31.83 - $21.33)/21.33)*100).