# Strangle Top Vertical Combination

The **Strangle Top Vertical Combination** is formed when trader writes put options and the same number of call options with the different strike prices on the underlying asset.

Let us assume that the trader writes put options with strike price K_{1} and writes call options with higher strike price K_{2}. In this method, the trader will enjoy cash inflow from writing options, unlike the Strangle Bottom Vertical Combination . The presumption is all options should expire on the same time.

## Strangle Top Vertical Combination

(compute based on: options volatility 35%, risk free rate on options 10%, K $55, K_{1} $55, K_{2}$60, period 6 months, present value of initial cashflow neglected, equity)

Let us assume P_{1} be write price of put option with underlying strike price K_{1}, P_{2} be write price of call option with higher underlying strike price K_{2}. The assumed current price of underlying is in between K_{1}and K_{2}.

### Strangle Top Vertical Combination

Profit Table

Initial Cash Outlay = P_{1} + P_{2}

Underlying Price Range | Payoff from Short Put Option at K_{1} strike |
Payoff from Short Call Option at K_{2} strike |
Total Payoffs |

S_{T} ≤ K_{1} |
-(K_{1} – S_{T}) |
0 | P_{1} + P_{2} – (K_{1} – S_{T}) |

K_{1} < S_{T} < k_{2} |
0 | 0 | P_{1} + P_{2} |

S_{T} ≥ K_{2} |
0 | -(S_{T} – K_{2}) |
P_{1} + P_{2} -(S_{T} – K_{2}) |

In the model of Strangle Top Vertical Combination using cash inflow method, the trader is of the opinion that the underlying price will remain in between K_{1 }and K_{2} that there will be a profit.

The Strangle Top Vertical Combination can be viewed as a profit capped trade as profit is limited to P_{1} + P_{2}. Alternatively, the Strangle Top Vertical Combination is a very low reward high risk trade because loses are unlimited if prices of underlying asset goes up beyond K_{2}or moves well below K_{1}.

The reward is very low because K_{1} and K_{2} are priced some distance away from the current underlying asset price, hence these options should not cost too much to write.

(compute based on: options volatility 35%, risk free rate on options 10%, K $60, K_{1} $55, K_{2}$60, period 6 months, present value of initial cashflow neglected, equity)

This trade is a form of volatility trade quite similar to the Straddle.

Best Options Trading for Dummies profits on Strangle Top Vertical Combination, Bottom Straddle, Top Straddle using Options Trading 101.