1. What it is
Standard short version: buy a low put, sell a higher put, sell a still-higher call and buy a high call. All legs share an expiration. Reversing all sides creates the long version.
2. Why use it
Sell a trading range and buy protection beyond both edges.
3. How the numbers work
SPY · Teaching example · Reference price $500
All option legs have the same expiration. Premiums are per share. Each standard contract represents 100 shares.
| Side | Option type | Strike | Quantity | Premium |
|---|---|---|---|---|
| Buy | Put | 480 | 1 | 1 |
| Sell | Put | 490 | 1 | 3 |
| Sell | Call | 510 | 1 | 3 |
| Buy | Call | 520 | 1 | 1 |
- Net premium
- −1 × 1 + 3 × 1 + 3 × 1 − 1 × 1 = $4.00 × 100 = $400.00
- Maximum expiration profit
- $400.00
- Maximum expiration loss
- $600.00
- Expiration breakeven
- $486.00 / $514.00
Expiration scenarios
| Underlying at expiration | Profit / loss |
|---|---|
| 480 | -$600.00 |
| 486 | $0.00 |
| 490 | $400.00 |
| 510 | $400.00 |
| 514 | $0.00 |
| 520 | -$600.00 |
Illustrative prices, before fees. Expiration payoffs exclude early assignment and changes in time value or volatility. Editing strikes keeps the entered premiums; no market quotes are fetched.
Explore this example ↗4. How it changes
Around its center, the short version is often positive theta, negative gamma and negative vega. Delta moves away from neutral as the underlying approaches either wing.
5. What to watch for
For equal wings, maximum expiration loss is wing width minus credit. For unequal wings, check the wider side. The reverse structure profits outside the center instead.
The quiet center is not a promise of low risk. A fast move or volatility expansion can produce a loss before either expiration breakeven is reached.