318 Part Ill: Put Option Strategies 
call premium, less $200 - the lesser out-of-the-money amount. The call is 2 points 
out-of-the-money and the put is 8 points out-of-the-money. Actually, the true collat­
eral requirement for any write involving both puts and calls - straddle write or stran­
gle write - is the greater of the requirement on the put or the call, plus the amount by 
which the other option is in-the-nwney. The last phrase, the amount by which the 
other option is in-the-money, applies to a situation in which a strangle had been con­
structed by selling two in-the-money options. This is a less popular strategy, since the 
writer generally receives less time value premium by writing two in-the-money 
options. An example of an in-the-money strangle is to sell the January 60 call and the 
January 70 put with the stock at 65. 
FURTHER COMMENTS ON UNCOVERED STRADDLE 
AND STRANGLE WRITING 
When ratio writing was discussed, it was noted that it was a strategy with a high prob­
ability of making a limited profit. Since the straddle write is equivalent to the ratio 
write and the strangle write is equivalent to the variable ratio write, the same state­
ment applies to these strategies. The practitioner of straddle and strangle writing 
must realize, however, that protective follow-up action is mandatory in limiting loss­
es in a very volatile market. There are other techniques that the straddle writer can 
sometimes use to help reduce his risk. 
It has often been mentioned that puts lose their time value premium more 
quickly when they become in-the-money options than calls do. One can often con­
struct a neutral position by writing an extra put or two. That is, if one sells 5 or 6 puts 
and 4 calls 'Ai.th the same terms, he may often have created a more neutral position 
than a straddle write. If the stock moves up and the call picks up time premium in a 
bullish market, the extra puts 'Aill help to offset the negative effect of the calls. On 
the other hand, if the stock drops, the 5 or 6 puts will not hold as much time premi­
um as the 4 calls are losing - again a neutral, standoff position. If the stock begins to 
drop too much, the writer can always balance out the position by selling another call 
or two. The advantage of writing an extra put or two is that it counterbalances the 
straddle writer's most severe enemy: a quick, extremely bullish rise by the underly­
ing stock. 
USING THE DELTAS 
This analysis, that adding an extra short put creates a neutral position, can be sub­
stantiated more rigorously. Recall that a ratio writer or ratio spreader can use the