| Strangle writes involve selling an out-of-the-money put and an out-of-the-money call. This is a neutral strategy. The hope is the stock will remain approximately unchanged. If the price stays below the call strike and above the put strike both options will expire worthless and you will pocket both premiums as income. The yield is calculated by dividing the income by the margin. For this table the margin is assumed to be 50% of the call strike price. Consult your broker for actual margins, which may be 30% or less and typically vary depending on the out-of-the-money distance. With strangle writes, both options are naked. If the stock goes above the call strike price your risk of loss is unlimited. If the stock goes below the put strike price your risk of loss is also enormous, limited only by the fact that the stock cannot go below zero. |
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