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Short Strangle | PFG Futures

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Short Strangle

Class: Precision

Synthetics: Short put A, Short call B Short call A, Short put B. Long put A, Long put B, Short instrument

Short call A, short call B, long instrument

(All done to initial delta neutrality)

Short Strangle | PFG Futures

When to use:

If market is within or near A-B range and, though active, is

quieting down. If market goes into stagnation, you make

money; if it continues to be active, you have a bit less risk

than with a short straddle.

Profit Characteristics:

Maximum profit equals option receipts if put – call version

employed. Maximum profit realized if market, at expiration,

is between A and B.

Loss Characteristics:

At expiration, losses occur only if market is above B plus

option receipts (for put-call) or below A less the amount.

Potential loss open-ended. Although less risky than short

straddle, position is not riskless. It got its name during the

April 1978 IBM price swing, when a number of good traders

holding this position were wiped out.

Decay Characteristics:

Because you are only short options, you pick up time decay

at an increasing rate as expiration nears, maximized if market

is within A-B range.

See also  Stochastic - Fast | Technical Indicators | BCI Futures