Last week, we discussed the short straddle.  This week, we will cover its’ ‘kissin Cousin’ the ‘Short Strangle’.  The position is comprised of two legs 1) a short put and a 2) short call, both placed out of the money with two weeks or less until expiration.

The trade banks on low volatility and time decay.  You can think of the trade as an Iron Condor with no wings.  There are no protective long options to limit risk on either side of the trade.  The maximum reward is the credit received and the risk is unlimited. 

Review the risk graph and you should gain a solid understanding of the risk and reward in the trade.  Best, Robin

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