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Level: Intermediate

Learn how to define short straddles and short strangles; learn how to construct these option strategies and under what conditions they may pose positive or adverse effects on profits and losses and understand how to calculate breakevens, as well as learn about the roles of implied volatility and time value.

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Overview of the Neutral Market Strategies module which introduces how to use options when there are relatively small price movements in the underlying asset, or where volatility is expected to diminish.

When neutral on the outlook for a stock, an investor might wish to generate income by selling same strike call and put options hoping that the stock will remain stuck in a defined range. Because implied volatility is a significant determinant of an option’s premium, investors also try to take advantage of diminishing volatility ahead to sell straddles.

Create a short straddle in Trader Workstation (TWS) using Strategy Builder.

When neutral on the outlook for a stock, an investor might wish to generate income by selling different strike call and put options hoping that the stock will remain stuck in a defined range. Because implied volatility is a significant determinant of an option’s premium, investors also try to take advantage of diminishing volatility ahead to sell strangles.

Create a short strangle in Trader Workstation (TWS) using Strategy Builder.

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