Option Strategy #12: Short Strangle

Sell An Out-Of-The-Money Call, And Sell An Out-Of-The-Money Put

Use this strategy when the market is range bound and you expect it to stay in the range, and fail to

make a large move prior to option expiration.

This strategy is similar to a Straddle, where you collect less premium by selling out of the money

options but have a wider margin of error.

The profit potential is limited to the premium collected, and the break even point at expiration is

equal to the strike price plus or minus the premium collected for the spread. Maximum profit is

realized if the market at expiration is trading between the sold strike prices.

The risk is unlimited in either direction, therefore, if the market is trading above the sold call, or

below the sold put, this is equivalent to being on the wrong side of the futures contract. Having

unlimited risk on both sides requires that you pay close attention and watch these positions

carefully.

Futures Traders Helping Future Traders