Short Strangle (Sell OTM Call + Sell OTM
Put)
Short Strangle involves the
simultaneous selling of a slightly out-of-the-money (OTM) put and an
out-of-the-money (OTM) call of the same underlying stock and expiration date.
Market Scenario: Neutral (Movement is Range Bound)
Risk: Unlimited
Reward: Limited to total premium received
BEP: UPPER BEP: Call Strike + Net Premium
LOWER BEP: Put Strike – Net Premium
EXAMPLE:
Entry:
Entry:
SPOT
|
5000
|
STRIKE
|
PREMIUM
|
|
SELL CALL
|
5100
|
50
|
SELL PUT
|
4900
|
40
|
UPPER BEP: 5100 + 90 = 5190 LOWER BEP: 4900 – 90 = 4810
On Exit if:
SPOT
|
CALL PAY-OFF
|
PUT PAY-OFF
|
STRATEGY PAY-OFF
|
4700
|
50
|
-160
|
-110
|
4800
|
50
|
-60
|
-10
|
4810
|
50
|
-50
|
0
|
4900
|
50
|
40
|
90
|
5000
|
50
|
40
|
90
|
5100
|
50
|
40
|
90
|
5190
|
-40
|
40
|
0
|
5200
|
-50
|
40
|
-10
|
5300
|
-150
|
40
|
-110
|
Short Strangle - Strategy Pay-Off
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