A short strangle consists of selling a call and a put at different strike prices for the same expiration and underlying asset. In this case, we are looking at March crude which expires in 15 days. We will sell the options just outside of the 'flag' range. The $56 strike call and the $51 strike put will be used. At the time of this writing, these were trading at $0.34 and $0.40, respectively. The net credit to your account would be $740, which is your maximum profit too.
As long as March crude oil settles between $51 and $56 at expiration, you will realize the maximum profit. If the market rallies above $56, then you will be assigned a short future. If the market sells off below $51, then you will be assigned a long future. Because of these possibilities, your risk is unlimited unfortunately. This strategy can be transformed into an 'iron condor' to minimize this risk. Please refer to my previous posts for more information on an 'iron condor'.
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