Overview
A short strangle sells an out-of-the-money call and an out-of-the-money put. You give the market a wider corridor to wander in than a straddle does, in exchange for a smaller credit. Profit comes from price staying between the two strikes while time decay erodes both options.
Like the short straddle, the reward is the premium and the risk is open-ended. The wider strikes raise the probability of a full win but reduce the income, so position sizing and a clear exit plan remain critical.
How it’s built
Sell 1 out-of-the-money call and sell 1 out-of-the-money put, same expiry. The credit collected is the maximum profit, earned anywhere between the strikes.
| Action | Option | Strike | Premium | Role |
|---|---|---|---|---|
| Sell | Call (CE) | 24,200 | 90 | Sell OTM call |
| Sell | Put (PE) | 23,800 | 80 | Sell OTM put |
Payoff at expiry
The diagram is computed from the legs above on an illustrative NIFTY 50 snapshot — spot 24,000, one lot of 75.
Worked example — NIFTY 50
Expecting NIFTY (at 24,000) to stay within a band, you sell the 24,200 call for 90 and the 23,800 put for 80 — a credit of 170 points (₹12,750 per lot).
Anywhere between 23,800 and 24,200 at expiry leaves you with the full credit. The breakevens sit at 23,630 and 24,370; outside that band the loss grows without limit, exactly like a straddle but starting from a wider, safer range.
At expiry
| If the market… | Outcome |
|---|---|
| NIFTY between 23,800–24,200 | Maximum profit — both legs expire worthless |
| NIFTY at 23,630 or 24,370 | Breakeven on either side |
| NIFTY breaks far either way | Escalating, uncapped loss |
Greeks & behaviour
When to use it
- You expect a calm, range-bound market with a wider band than a straddle.
- You want a higher probability of profit than a straddle, accepting less income.
- Implied volatility is elevated and likely to fall.
Risks & caveats
- Unlimited loss outside the breakevens.
- Trending or gapping markets can blow through a strike rapidly.
- Margin-intensive and exposed to event and overnight risk.
Key takeaways
- A wider, higher-probability cousin of the short straddle.
- Still carries uncapped tail risk — protection or stops are advisable.
- Income trade for genuinely quiet conditions.
Test this on live data
Load the Short Strangle preset in the Strategy Builder to see real strikes, premiums and a live payoff graph.
Educational content only — not investment advice or a recommendation. All strikes, premiums and figures are illustrative and do not reflect live market quotes. Options carry significant risk; consult a registered adviser before trading.