Short
Strangle
A premium-selling favourite for quiet markets — but one with a serious tail risk. Here's how it works, the numbers, and exactly why risk management isn't optional.
What it is
A short strangle means selling an OTM call and an OTM put on the same underlying and expiry. You collect both premiums up front and keep them if the underlying stays between the two strikes. It profits from a range-bound market, time decay and falling volatility.
Key facts
- Market view: neutral / range-bound, ideally with high IV that's about to fall.
- Construction: Sell 1 OTM call + Sell 1 OTM put (same expiry).
- Net result: credit — premium received up front.
- Max profit: the net credit, if both expire worthless.
- Max loss: theoretically unlimited on the call side (and very large on the put side).
- Breakevens (two): call strike + total credit, and put strike − total credit.
Worked NIFTY example
NIFTY at 22,500. Sell the 22,700 call for 60 and the 22,300 put for 55 → total credit 115 (illustrative):
- Max profit: 115, if NIFTY expires between 22,300 and 22,700.
- Upper breakeven: 22,700 + 115 = 22,815.
- Lower breakeven: 22,300 − 115 = 22,185.
- Beyond those, losses grow without a built-in cap.
A serious risk warning
The short strangle has undefined risk. A gap or strong trend beyond a strike can produce losses many times the premium collected. Most disciplined traders either (a) define the risk by buying further-OTM wings — turning it into an iron condor — or (b) use strict stop-losses and position sizing. Never run a naked short strangle without a risk plan.
When to use it
- You expect the market to stay in a range with falling volatility.
- You have the margin and the discipline to manage the open-ended risk.
Model risk before you sell premium
See breakevens, margin and the open risk profile on TradePulse's strategy builder before placing a short strangle.
Related strategies
- Iron Condor — the defined-risk version.
- Long Straddle — the opposite (long volatility).
- What is max pain? — useful for picking strikes.