short call is ITM, with a −1.00 delta. If the stock is above the upper
breakeven of $76 (the call strike plus the premium), the trade is a loser. The
higher the stock, the bigger the loss.
Intuitively, the signs of the greeks of this strangle should be similar to
those of a short straddle—negative gamma and vega, positive theta. That
means that increased realized volatility hurts. Rising IV hurts. And time
heals all wounds—unless, of course, the wounds caused by gamma are
greater than the net premium received.
This brings us to an important philosophical perspective that emphasizes
the differences between long straddles and strangles and their short
counterparts. Losses from rising vega are temporary; the time value of all
options will be zero at expiration. But gamma losses can be permanent and
profound. These short strategies have limited profit potential and unlimited
loss potential. Although short-term profits (or losses) can result from IV
changes, the real goal here is to capture theta.