How Do Options Traders Use a Short Strangle Strategy to Profit from High Implied Volatility?
A short strangle is an options trading strategy where a trader simultaneously sells an out-of-the-money (OTM) call option and an OTM put option with the same expiration date. This strategy is used when the trader expects the implied volatility to be high (meaning high premiums received) but anticipates that the underlying asset's price will remain relatively stable and not breach either OTM strike price before expiration.
The trader profits by collecting the premiums from both options, which decay as the expiration date approaches.
Glossar
Strangle
Definition ⎊ The strangle is a neutral options strategy involving the simultaneous purchase of a call option and a put option on the same underlying asset, with the same strike price but different expiration dates.
Short Strangle Strategy
Construction ⎊ A Short Strangle strategy, within cryptocurrency options, involves simultaneously selling an out-of-the-money call and an out-of-the-money put option on the same underlying asset with the same expiration date.
Maximum Profit Potential
Scope ⎊ Maximum Profit Potential for an option buyer is theoretically unlimited when purchasing a call option, as the underlying cryptocurrency price can theoretically rise indefinitely.
Short Strangle
Construction ⎊ The Short Strangle is a non-directional options trading Construction involving the simultaneous sale of an out-of-the-money call option and an out-of-the-money put option on the same underlying asset and expiration date.