/biz/ - Business & Finance

>>12953881
ok here is a real world example using current prices on deribit.
>sell puts at 3625
>+$20
>sell calls at 4125
>+$16
>credit: +$36
>price hits 4125 -> buy ATM calls
>-$90
>credit: -$54
>price hits 3625 -> buy ATM puts
>-$90
>credit: -$144

max loss: -$144
max gain: +$36

Of course the max loss is only realised if the price hits both 3625 and 4125 before the 15th of March (expiration date of the contracts) - which is very unlikely. It means that if you get this trade right 80% of the time, you are in profit. If it only hits one of the 3625 / 4125 by the 15th you only need to get the trade right 70% of the time. The max loss get's less and less with each passing day as well due to time decay eating away at the ATM prices. So considering that time decay accelerates at an increased rate, the closer to expiration, the risk drastically goes down. example; current contracts that expire on the 8th have ATM price of $14. so max loss after 8 days of this specific contract becomes;

max loss: +$8 (yes you read that right it's a "+")
max gain: +$36

Pic related. It has to stay between the pink lines before the blue line.In comparison to iron condor which in the same position which would do;

max loss: -$134
max gain: +$18

the max loss is also a constant and does not get less and less like with the above strategy. And it is already priced in, if the price goes above a single one of the pink lines. In comparison the strategy above needs to hit BOTH pink lines to get a max loss.