A short strangle gives the obligation to buy
the stock at strike price A and the obligation to sell the stock at strike
price B if the options are assigned. You are predicting the stock price will
remain somewhere between strike A and strike B, and the options you sell will
expire worthless.
By selling two options, significantly
increase the income you would have achieved from selling a put or a call alone.
But that comes at a cost. There is unlimited risk on the upside and substantial
down. This strategy is only for the most advanced traders who like to live
dangerously .
There are two break-even points:
·
Strike A minus the net credit received.
·
Strike B plus the net credit received.
PROFITS AND LOSSES IN THE STRATEGY:....
