Short Strangle
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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