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Strategy View
The investor thinks that the market will not be volatile within a broad
band.
Strategy Implementation
Put option is sold with a strike price of a
and a call option is sold with the higher strike price b.
Upside Potential
Limited to the two premiums received.
Break-Even Point at Expire
Lower point c will
be the lower strike minus the two premiums received, the upper point d will be the higher
strike plus the two premiums received.
Downside Risk
Unlimited. Should the market fall or rise greatly. (If the investor likes
the strategy, but not the downside risk, a long butterfly may be preferable).
Margin
Always required.
Comment
If the market does little then the value of the position will benefit as
the short positions gain when the option time value falls.
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