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Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Strategy
Advanced
Short Strangle
A neutral options strategy where a trader sells an OTM call and OTM put and profits if the underlying stays within a defined range.
Detail
The strategy involves selling both a call and a put option with the same expiration date but different strike prices. Both options are typically out-of-the-money. The trader profits from time decay and a range-bound market. Maximum profit is the total premium received and potential loss is theoretically unlimited.
A Short Strangle involves selling both a call and a put option with the same expiration date but different strike prices. Both options are typically out-of-the-money (OTM). The strategy profits from time decay and a lack of significant movement in the underlying asset. The trader receives two premiums upfront – one from each option. The maximum profit is limited to the total premium received while potential losses are theoretically unlimited to the upside and significant to the downside. The position must be actively monitored especially near expiration or during high volatility events.
Optimal conditions
Best used during high implied volatility when the market is expected to stay within a range. Avoid entering before earnings or major announcements. Suitable for experienced traders who can manage risk.
Max profit
Total premium collected from both options.
Max loss
Unlimited if the underlying makes a large move up or down.
Risks
Unlimited loss if the underlying makes a sharp move in either direction. Margin requirements can increase rapidly during volatility. Risk of gap moves and assignment if one leg becomes deep ITM.
Greeks
Delta: neutral at entry but becomes directional with movement. Theta: positive. Vega: negative. Gamma: negative – sharp moves increase risk.
Variations
Short Straddle, Iron Condor, Wide Strangle, Narrow Strangle.
Usage example
The trader sells a 100 Put and a 120 Call on a stock trading at 110. If the stock stays between 100 and 120 both options expire worthless and the full premium is kept.
DTE
Typically 30–45 days to expiration. Many traders exit early if 50–75 percent of the premium is captured.
IV (implied volatility)
High IV is favorable at entry because it increases premium but rising IV after entry increases risk.
Premium
The trader receives two premiums from the call and the put which define the profit range.
Margin
Yes – naked strategy with significant margin requirements. Margin increases as the underlying approaches one of the strikes.
Notes
Close or adjust early once profit targets are hit. Monitor delta shifts actively.
Tags
short strangle, option selling, neutral, time decay, non-directional
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