Short Strangle
Straddles are a neutral strategy with a high range of risk and limited reward.
How it works: You are looking at a stock not expected to show short-term volatility. The short
straddle requires you to buy the call option and the put option at the current strike price. If
the stock stays put, you make money. If it moves in either direction you have less profit or face
a big loss.
Example: Your stock is trading at $80. You purchase the $80 call and the $80 put for a total of
$14 ($1,400 per contract). If the stock stays at $80, you will collect on the call and the put.
You will remain profitable if the stock trades in the range of $66 to $94.
The payoff: It's a double win, if the price stays the same.
The drawback: If the stock moves big, either up or down, you could lose big.For a less-risky
strategy, a long butterfly has the same objectives, but less risk.
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