Selling both an OTM call and an OTM put. Like a short straddle but with a wider profit zone due to out-of-the-money strikes. Lower premium collected but wider range of profitability. Still carries significant risk.
Total premium received from both options
Unlimited on upside, substantial on downside
Call strike + total premium OR Put strike - total premium
Short 1 OTM Call + Short 1 OTM Put (different strikes, same expiry)
Limited profit. Unlimited risk on upside, substantial on downside. Wider profitable range than straddle.
When you expect the stock to trade within a range. When IV is very high. Provides wider margin of safety than short straddle but still carries unlimited risk.