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Short Strangle

Short Strangle

  • date-icon Sep-13-2024

Short Strangle

Market View

Range-bound, Not moving

The Trade

Sell a Put below stock price and sell a Call above the stock price. Your view is that the stock will not cross the call or put strikes.

Premium

Receive

Margin

Required

When To Do

  • If the stock will stay still and expire between the call and put strike.
  • Avoid trending markets
  • Avoid selling low IV

Pros

  • Delta Neutral – Immune to small moves
  • Make money if nothing happens
  • Higher margin of safety compared to straddle

Cons

  • High loss if market moves a lot in one direction

Time and Volatility

  • Gains time value decay every day
  • Loses if IV goes up