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All-StarsNeutral (expect low volatility)
Short Strangle
Overview
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.
Max Profit
Total premium received from both options
Max Loss
Unlimited on upside, substantial on downside
Breakeven
Call strike + total premium OR Put strike - total premium
Structure
Short 1 OTM Call + Short 1 OTM Put (different strikes, same expiry)
Risk Profile
Limited profit. Unlimited risk on upside, substantial on downside. Wider profitable range than straddle.
When to Use
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.