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+Chapter 20: The Sale of a Straddle 315 
+STRANGLE (COMBINATION) WRITING 
+Recall that a strangle is any position involving both puts and calls, when there is some 
+difference in the terms of the options. Commonly, the puts and calls will have the 
+same expiration date but differing striking prices. A strangle write is usually estab­
+lished by selling both an out-of-the-money put and an out-of-the-money call with the 
+stock approximately centered between the two striking prices. In this way, the naked 
+option writer can remain neutral on the outlook for the underlying stock, even when 
+the stock is not near a striking price. 
+This strategy is quite similar to straddle writing, except that the strangle 
+writer makes his maximum profit over a much wider range than the straddle 
+writer does. In this or any other naked writing strategy, the most money that the 
+strategist can make is the amount of the premium received. The straddle writer 
+has only a minute chance of making a profit of the entire straddle premium, since 
+the stock would have to be exactly at the striking price at expiration in order for 
+both the written put and call to expire worthless. The strangle writer will make his 
+maximum profit potential if the stock is anywhere between the two strikes at expi­
+ration, because both options will expire worthless in that case. This strategy is 
+equivalent to the variable ratio write described previously in Chapter 6 on ratio 
+call writing. 
+Example: Given the following prices: 
+XYZ common, 65; 
+XYZ January 70 call, 4; and 
+XYZ January 60 put, 3, 
+a strangle write would be established by selling the January 70 call and the January 
+60 put. IfXYZ is anywhere between 60 and 70 at January expiration, both options will 
+expire worthless and the strangle writer will make a profit of 7 points, the amount of 
+the original credit taken in. If XYZ is above 70 at expiration, the strategist will have 
+to pay something to buy back the call. For example, if XYZ is at 77 at expiration, the 
+January 70 call will have to be bought back for 7 points, thereby creating a break-even 
+situation. To the downside, if XYZ were at 53 at expiration, the January 60 put would 
+have to be bought back for 7 points, thereby defining that as the downside break­
+even point. Table 20-3 and Figure 20-3 outline the potential results of this strangle 
+write. The profit range in this example is quite wide, extending from 53 on the down­
+side to 77 on the upside. With the stock presently at 65, this is a relatively neutral 
+position.