What is involved in executing a short strangle strategy?

A short strangle strategy involves selling options with different strike prices for the same expiration date. In this case, one sells a high strike call option and a low strike put option. This strategy is implemented when an investor expects the underlying asset to have low volatility and remain within a certain price range.

By selling a high strike call, the investor is taking in premium income, betting that the asset will not rise above that strike price. Selling the low strike put serves a similar purpose; the investor believes the asset will not fall below that level. The combination of these two positions creates a range of prices for the underlying asset, ideally allowing the options to expire worthless and the investor to keep the collected premiums.

This strategy benefits from time decay, as the value of the sold options decreases as expiration approaches, provided the underlying does not move significantly. Thus, the key component of executing a short strangle is the simultaneous sale of the mentioned options at different strike prices, aligning with the investor's market outlook.