back

neutral strategies

Short Strangles

Analyzing the risk profile of a short strangle
XYZ is trading for $55.05. You sold a $5-wide strangle for a $1.89 credit. What is the most you can make on this trade?
$5505
This answer is incorrect. Please try again.
$55.05
This answer is incorrect. Please try again.
$500
This answer is incorrect. Please try again.
$189
Correct! The most you can make on a strangle is the credit you receive.
XYZ is trading for $50. Assuming you collected $3, which strangle has the highest pop?
35 put, 40 call
This answer is incorrect. Please try again.
49 put, 51 call
This answer is incorrect. Please try again.
45 put, 55 call
Correct! This strangle has the widest profit zone ($42 - $57) and does not require directional correctness to achieve profitability.
50 put, 52 call
This answer is incorrect. Please try again.
XYZ is trading for $50. Which strangle holds the most intrinsic value?
35 put, 40 call
Correct! The call of this strangle is $10 in the money, which means it has $10 of intrinsic value.
49 put, 51 call
This answer is incorrect. Please try again.
45 put, 55 call
This answer is incorrect. Please try again.
50 put, 52 call
This answer is incorrect. Please try again.
XYZ is trading for $50. The 45/55 inverted strangle is trading for $11.25. How much extrinsic value does it contain?
$1000
This answer is incorrect. Please try again.
$125
Correct! This is a $10-wide inverted strangle. Therefore, we know that $10 of the $11.25 is intrinsic value. The remainder is extrinsic value.
$11.25 - $10 = $1.25
$1.25 × 100 = $125
$11.25
This answer is incorrect. Please try again.
$10
This answer is incorrect. Please try again.
You're short the 45/50 strangle and XYZ has dropped down to $42. How much intrinsic value does your call have?
$8
This answer is incorrect. Please try again.
$5
This answer is incorrect. Please try again.
$3
This answer is incorrect. Please try again.
$0
Correct! The call is out of the money. It has no intrinsic value.
You're short the 45/50 strangle and collected a total of $2. If XYZ were $53 at expiration, would the trade be a winner or a loser?
Winner
This answer is incorrect. Please try again.
Loser
Correct! The upper break-even is calculated by adding the credit received to the call strike.
$50 + $2 = $52
If the share price is $53 at expiration, it means the underlying has breached the break-even by $1. The trade is a $1 loser.
If you sell the 45/50 strangle for $1.50, what would your break-evens be?
$43.50, $48.50
This answer is incorrect. Please try again.
$43.50, $51.50
Correct! To calculate the lower break-even, subtract the credit from the low strike
$45 - $1.50 = $43.50
To calculate the upper break-even, add the credit to the high strike
$50 + $1.50 = $51.50
$45, $50
This answer is incorrect. Please try again.
$46.50, $48.50
This answer is incorrect. Please try again.
XYZ is trading for $50. Which one of these strangles would have the highest extrinsic value?
35 put, 65 call
This answer is incorrect. Please try again.
40 put, 60 call
This answer is incorrect. Please try again.
45 put, 55 call
Correct! This is the tightest strangle around the current share price. It would contain the most extrinsic value.
40 call, 60 put
This answer is incorrect. Please try again.
You have a short 50 call and a short 55 put. You've collected a total of $3 so far. What is your max profit potential?
-$2
Correct! This strangle is inverted because the put strike is above the call strike. That means that it has a minimum intrinsic value equal to the width of the strikes ($5). You've collected $3 which means you're $2 under water. In other words, your best case scenario is that you lose $2. ($3 - $5 = -$2)
-$3
This answer is incorrect. Please try again.
$3
This answer is incorrect. Please try again.
$5
This answer is incorrect. Please try again.
XYZ is trading for $50. Which one of these strangles would have the lowest value?
35 put, 65 call
Correct! The strikes of this strangle are the farthest out of the money. It would have the lowest value of the choices provided.
40 put, 60 call
This answer is incorrect. Please try again.
45 put, 55 call
This answer is incorrect. Please try again.
40 call, 60 put
This answer is incorrect. Please try again.
If you sold a 45/55 strangle for $3, which scenario would result in the greatest profit at expiration?
$65/share
This answer is incorrect. Please try again.
$60/share
This answer is incorrect. Please try again.
$56/share
This answer is incorrect. Please try again.
$54/share
Correct! This is the only option with the share price between the strikes. It would be a maximum winner.

back

neutral strategies
Open a Tastyworks Brokerage Account