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
Eighteen-year old trader, future connoisseur of options.
Follow me on Twitter!