Short Strangle
Components
Short one OTM Call
Short one OTM Put
Short one put option with a lower strike price and short one call option at a higher strike price.
Risk / Reward
Maximum Loss: Unlimited as the market moves in either direction.
Maximum Gain: Limited to the net premium received for selling the options.
Characteristics
When to use: When you are bearish on volatility and think market prices will remain stable.
A short strangle is similar to the " Short Straddle " except the strike prices are further apart, which lowers the premium received but also increases the chance of a profitable trade.
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