Sample Essay

In a short-strangle a put and call are sold simultaneously but at different strike prices. It is the same as short straddle with the only difference in the strike prices. This strategy is used when the investor expects a range bound market and the premium received in this strategy is lower than the premium received in short-straddle strategy. Again like the short straddle strategy the risk is unlimited while the profit is limited.

If the prices remain within the profitable range and the option expires the investor will benefit from it but if the price moves in one direction rapidly the investor faces a loss (Natenberg 1994).

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