Sell a call + put ATM (or OTM for a strangle). Collects a high premium and profits from calm, but the risk is large: unlimited on the upside (the call) and very large on the downside (the put). Requires Tier 3 approval at most brokers.
The structure
A Short Straddle / Short Strangle (Short Straddle / Short Strangle) flips the bet: you sell both the call and the put, at one strike (straddle) or two separate strikes (strangle), and collect both premiums. You profit if the price stays still, and the loss is theoretically open-ended in both directions.
Who uses it and why
Professional volatility sellers do it when they see implied volatility inflated above what will be realized: they sell fear and buy it back cheaper later. The sold strangle is more common because its profit range is wider, while the sold straddle collects more and has a narrower safe zone.
Maximum profit and loss
Maximum profit is the full premium collected, inside the range. Loss is theoretically uncapped beyond the two breakevens, and that alone puts it among the tools for those with the capital, the discipline and the margin to bear the worst case.
Hypothetical example
An index at 5,000 and a sold strangle with strikes at 4,800 and 5,200 collecting $40: a quiet month inside the range means the full $40. A drop to 4,600: the put leg alone loses $200 minus the premium collected, and spreads have widened and implied volatility has swelled against any attempt to exit.
Common mistake
Repeated success breeds size inflation until the tail arrives: a run of small winning months, then a single loss that swallows them all and more. A small, fixed position size relative to capital is the difference between a strategy and a gamble.
Where to see it on the platform
The calculator draws its inverted dome, and the volatility risk premium indicator answers its core question: does implied volatility today pay a fee worth this tail?
