Options Income
Short Strangle
Sell an out-of-the-money call and an out-of-the-money put at the same time, no protection bought on either side. The trade profits from time decay and the underlying sitting still. Risk is undefined on both wings.
Run trials, watch the histogram build
Each trial simulates one full 30-day cycle and drops a bar onto the histogram below at whatever the trade's P&L came out to. Run trials one at a time or fifty at once. The strikes are set by the distance slider, further out means a smaller credit but a lower chance any single trial breaches either side.
How it works
- Two short options, no long options. A call sold above the current price and a put sold below it, both collecting premium up front, with nothing bought to cap either side. That's the entire difference between this and an iron condor, which buys wings on both sides for defined risk.
- The best case is the underlying doing nothing. If price finishes between the two strikes at expiration, both options expire worthless and the full combined credit is kept. That's what most of the green bars in the histogram represent.
- A breach on either side starts eating into the credit immediately, and doesn't stop. Once price passes a strike, the short option on that side behaves like stock, one dollar of loss for every further dollar the underlying moves. There's no strike above or below where that stops.
- Most trials look similar. The tail doesn't. The histogram is built from ordinary moves the large majority of the time, small credits collected over and over. Run enough trials and the occasional large move shows up as a single bar far to the left, dwarfing the rest of the chart even though it happened once.
Where this breaks
Uncapped loss on a strategy that wins most of the time
Run a batch of fifty trials and look at the shape that builds up. Dozens of small green bars cluster near the credit amount, and if a tail trial lands, one red bar appears far to the left, often larger than ten or twenty of the wins combined. A strategy can have a genuinely high win rate and still be a poor bet if the rare loss is large enough to erase many winning trials at once, and because neither strike has a long option capping it, there's no fixed number telling you in advance how large that one bar can get.