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+Chapter 20: The Sale of a Straddle 317 
+to limit his losses. This can, as has been shown previously, entail a purchase price 
+involving excess amounts of time value premium, thereby generating a significant 
+loss. 
+The only other alternative that is available to the strangle writer ( outside of 
+attempting to trade out of the position) is to convert the position into a straddle if the 
+stock reaches either break-even point. 
+Example: IfXYZ rose to 70 or 71 in the previous example, the January 70 put would 
+be sold. Depending on the amount of collateral available, the January 60 put may or 
+may not be bought back when the January 70 put is sold. This action of converting 
+the strangle write into a straddle write will work out well if the stock stabilizes. It 
+will also lessen the pain if the stock continues to rise. However, if the stock revers­
+es direction, the January 70 put write will prove to be unprofitable. Technical analy­
+sis of the underlying stock may prove to be of some help in deciding whether or not 
+to convert the strangle write into a straddle. If there appears to be a relatively large 
+chance that the stock could fall back in price, it is probably not worthwhile to roll 
+the put up. 
+This example of a strangle write is one in which the writer received a large 
+amount of premium for selling the put and the call. Many times, however, an aggres­
+sive strangle writer is tempted to sell two out-of-the-money options that have only a 
+short life remaining. These options would generally be sold at fractional prices. This 
+can be an extremely aggressive strategy at times, for if the underlying stock should 
+move quickly in either direction through a striking price, there is little the strangle 
+writer can do. He must buy in the options to limit his loss. Nevertheless, this type of 
+strangle writing - selling short-term, fractionally priced, out-of-the-money options -
+appeals to many writers. This is a similar philosophy to that of the naked call writer 
+described in Chapter 5, who writes calls that are nearly restricted, figuring there will 
+be a large probability that the option will expire worthless. It also has the same risk: 
+A large price change or gap opening can cause such devastating losses that many 
+profitable trades are wiped away. Selling fractionally priced combinations is a poor 
+strategy and should be avoided. 
+Before leaving the topic of strangle writing, it may be useful to determine how 
+the margin requirements apply to a strangle write. Recall that the margin require­
+ment for writing a straddle is 20% of the stock price plus the price of either the put 
+or the call, whichever is in-the-money. In a strangle write, however, both options may 
+be out-of-the-money, as in the example above. When this is the case, the straddle 
+writer is allowed to deduct the smaller out-of-the-money amount from his require­
+ment. Thus, if XYZ were at 68 and the January 60 put and the January 70 call had 
+been written, the collateral requirement would be 20% of the stock price, plus the