This trade will only profit or lose if the stock moves below Leg 1 or above Leg 2 rather than between the strikes at expiration. It behaves like a short synthetic future when it is further away from expiration.
Alias
short call and put combo, a call and put spread
Description
Involves selling a call option and a put option on the same underlying asset, with both options having the same expiration date but different strike prices. This strategy allows the trader to profit from a narrow range of prices for the underlying asset, as the trader will receive a premium for selling both options but will also be obligated to buy or sell the underlying asset at the strike price of the option if it is exercised.
Sweet spot
Stock price falls way below Leg 1
Breakeven
Sum of the strike price of the call option and the premium received for the call option, minus the strike price of the put option and the premium received for the put option
Max profit
limited to the difference between the premiums received for the call and put options
Max Loss
Unlimited, as the value of the underlying asset, could theoretically continue to increase or decrease without any upper or lower bound.
