Accepting Exposure   • 231
Risk: Amount equal to upper strike price minus premium received
Reward: Limited to premium received
Margin: Dollar amount equal to upper strike price
Short Strangle
RED
RED
Downside: Overvalued
Upside: Overvalued
Execute: Sell an OTM put; simultaneously sell an OTM call spread
Risk: Call-spread leg: Amount equal to difference between 
strikes and premium received. Put leg: Amount equal to 
strike price minus premium received. Total exposure is 
the sum of both legs.
Reward: Limited to premium received
Margin: Call-spread leg: Amount equal to difference between 
strikes. Put leg: Amount equal to strike price. Total mar -
gin is the sum of both legs.
The Gist
In my opinion, these are short-term trades rather than investments. Even 
though a short put uses a short-tenor option, the perspective of the inves-
tor is that he or she is buying shares. These strategies are a way to express 
the belief that the underlying stock price will not move over a short time. 
In my experience, there is simply no way to develop a rational view of how 
a single stock will move over a short time frame. In the short term, markets