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Option Short Strangle

INR 29,999.00
 


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* Benefits & Features :

Selling a call and selling a put with the same expiration, but where the call strike price is above the put strike price is known as the short strangle strategy. The short strangle option strategy is a limited profit options trading strategy that is taken when the options trader thinks that the underlying stock will experience little volatility till expiry.  
Like the short straddle, advanced traders might run this strategy to take advantage of a possible decrease in implied volatility. If implied volatility is abnormally high for no apparent reason, the call and put may be overvalued. After the sale, the idea is to wait for volatility to drop and close the position at a profit.
Limited Profit
Maximum profit for the short strangle occurs when the underlying stock price on expiration date is trading between the strike prices of the options sold. At this price, both options expire worthless and the options trader gets to keep the entire initial credit taken as profit.
The formula for calculating maximum profit is given below:

  • Max Profit = Net Premium Received - Commissions Paid
  • Max Profit Achieved When Price of Underlying is in between the Strike Price of the Short Call and the Strike Price of the Short Put

       
                                                           

Unlimited Risk
Large losses for the short strangle can be experienced when the underlying stock price makes a strong move either upwards or downwards at expiration.
The formula for calculating loss is given below:

  • Maximum Loss = Unlimited (If traders don’t use stoploss)
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Net Premium Received OR Price of Underlying < Strike Price of Short Put - Net Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid
  • Basic specifications are as mentioned below:
  • Trader can trade in  Futures and Index Options 
  • Contract Size: Depends on the stock or index
  • Expiration Cycle: 3 Months 
  • Tick Size: 5 paisa per share or contract 
  • Trading Hours: 9:15 a.m. to 3:30 p.m. IST (on business days)
  • Last Trading Day: Last Thursday of the expiration month(for futures)
  • Margin Requirement: Value of premium X lots + 20% of the stock's contract value