The exact opposite of buying strangles! In this case, the investor sells an OTM call and OTM put. Let's take a look at the graph:

As mentioned earlier, in the selling straddle post, when we sell a put we profit when the price is above the break even price (strike-premium sold) and when we sell a call we profit when the price is below the break even price (strike-premium sold). The profits and losses for selling a strangle are as follows:

Price is above the put break even price and below the call break price: Profit! Maximized at premium collected from both sales

When the price is not in the aforementioned range: Loss is unlimited

Advanced Tips: 

• Sell a strangles only when the IV is high and profit by buying it back when the IV collapses.  Environments around binary events such as major news announcements or earnings release are ideal for selling strangles
• Selling 16 delta call and 16 delta put gives approximately one standard deviation chances of profiting (i.e, 84% chance of winning)
• Close strangles at 50% profit helps long term profitablity of the portfolio. Example, if you sell a strangle for $2.00, you ought to take profits when you can buy the strangle back for $1.00 and deploy the capital for some other trade
• Closing strangles at 200% loss helps limit the deep drawdowns in your portfolio. Example, if you sell strangle for $2.00, you ought to close it if you can for $6.00 and move on to next trade. If you can't, you can roll the tested side to next cycle and move the non-tested side close to current stock price

Strangles are similar in essence to straddles--the thing that changes is the type of strike we purchase or sell them at. 

When buying a strangle, the investor buys a call at an OTM strike price (above the current price) and buys a put at an OTM strike price (below the current price). Here is the graph: 

When price is above the call break even price or below the put break even price: Unlimited profit!

When price is not in the aforementioned range: Loss! The maximum loss is constant at all prices in this range and is equivalent to the total premium paid for both options.

Advanced tips:

• low IV environment when the both calls and puts are cheap would a good environment to buy the strangle. But we'd need a fast and furious move in the stock price to make any kind of profit as we are the buyers or premium and we know that the premium erodes with each passing day
• typically I don't buy the strangles except in cases I need to reduce my buying power capacity on a strangle that I'm holding (in which case I'd have converted over to an iron condor)

Selling straddle is the exact opposite of buying a straddle. Instead of buying a call and put option at the same strike price, the investor instead sells a call and put option the same strike price. 

When selling a put, you profit when the price is above the break even price (strike-premium collected). When selling a call, you profit when the price is below the break even price (strike-premium collected). When selling a straddle therefore, you profit when the price is above the call break even price and below the put break even price. 

Price is above the put break even price and below the call break even price: Profit! Maximum profit is at the strike price. Therefore, when selling a straddle you are under the impression that the price will be at the strike price by expiration.

Price is not within the aforementioned range: Loss. Unlike buying a straddle, when selling a straddle there is an unlimited amount of loss. 

Advanced Tips: 

• Sell a straddles only when the IV is high and profit by buying it back when the IV collapses.  Environments around binary events such as major news announcements or earnings release are ideal for selling strangles
• Close straddles at 25% profit helps long term profitablity of the portfolio. Example, if you sell a straddle for $2.00, you ought to take profits when you can buy the straddle back for $0.50 and deploy the capital for some other trade
• Closing straddles at 200% loss helps limit the deep drawdowns in your portfolio. Example, if you sell straddle for $2.00, you ought to close it if you can for $6.00 and move on to next trade. If you can't, you can roll to next option cycle or go inverted and gain duration/time for your trade to be right 

Naked options? For novices. Now that we've discussed the theory behind vertical spreads, we are ready to move to straddles! 

What is a straddle?
When buying a straddle, the trader buys both a call and put at the same option price. The investor makes money regardless of the direction of the stock. However, it depends on how much a stock increases or decreases.

Let's analyze when we profit or lose when buying straddles! But first we need to recall when we profit when buying naked calls or options. When the price is above the break even price (strike + premium paid) for a call, we profit. When the price is below the break even price (strike- premium paid) for a put, we profit. SImilarly:

Price is greater than call break even price or less than the put break even price: Profit!

Price is not within the aforementioned range: Loss. Your maximum loss is capped at the premiums paid for both options. 

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