Short Strangle
Sell an OTM call and put to collect premium over a wider range than a short straddle — still unlimited risk.
What is a Short Strangle?
A Short Strangle sells an OTM call and an OTM put at different strikes. It collects less premium than a short straddle but offers a wider profit range — you keep the full credit as long as the underlying stays between the two short strikes at expiry. Like the short straddle, risk is unlimited beyond the breakevens, so it is strictly for experienced, well-capitalised traders with disciplined stops.
Payoff Diagram
Profit & Loss at expiry
Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.
Construction
- Sell 1 OTM Call (above spot).
- Sell 1 OTM Put (below spot), same expiry.
- Total premium received = maximum profit.
When to Use It
Use when you expect a range-bound market and IV is high. The wider strikes give more room than a short straddle. Manage risk with stops or by buying wings (which converts it into an Iron Condor).
The Greeks
Delta ≈ 0 at entry, Positive Theta, Negative Vega, Negative Gamma.
Risks & Considerations
- Unlimited loss beyond either breakeven.
- Volatility spikes inflate both legs against you.
- Trending markets create accelerating (negative-gamma) losses.
- High and variable margin requirements.
Worked Example (Nifty)
Illustrative trade — lot size 75
Nifty 20,000. Sell 20,300 CE ₹90 + 19,700 PE ₹90 = ₹180 credit (₹13,500 max profit) if Nifty stays between 19,700 and 20,300. Breakevens 19,520 and 20,480. A move to 21,000 makes the call worth ₹700, loss = (700 − 180) × 75 = ₹39,000 and rising.