Financial Tutorial
 

Options: Advanced Strategies - Unlimited Risk

Selling uncovered options is very dangerous. The purpose of this section is not to encourage you to issue options but well to explain the mechanisms.

SHORT STRADDLE

Technique: sell a call and a put at the same striking and at the same maturity date.
To be used when no movement of the underlying security price is expected.
Maximum risk: UNLIMITED.
Maximum profit: limited to premium received.

SHORT STRANGLE

Technique: sell a call (E2) and a put at a lower striking (E1) and at the same maturity date.
To be used when a limited movement of the underlying security price (between E1 and E2) is expected.
Maximum risk: UNLIMITED.
Maximum profit: limited to premium received.

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