SHORT STRADDLE / STRANGLES

Short straddles and strangles have unlimited risk but a very wide profit zone.

Our third neutral spread will be an extremely conservative short strangle position
A short strangle consists of selling a put and call option.
This strategy will give us a very high probability of profit but have unlimited risk.

This strategy uses the following options for OEX (s&p100 index) at on 12/14/00 at a current price of 710.67.
(sell 670call @ 51) + (sell 750put @ 43.8)

We can see from the PL graph that there is a huge profit zone but unlimited risk should the OEX go up or down considerably.
The profit zone is from 655 to 764 with a great probability of profit at 90.04%. The maximum reward is at $1450 but the expected return
is a negative due to the unlimited risk.

From the 90 day historical price & profit zone chart, we observe a very wide profit zone (red and yellow lines) which the OEX should comfortably
stay in for the next 40 days.