What is a Short Strangle?
A Short Strangle is an unlimited risk options strategy used when you expect the market to remain range-bound with low volatility. It involves selling both a Call and a Put that are OTM (Out of The Money).
The goal? Collect premium from both sides and profit if the underlying remains between your two strikes.
Think of It Like This:
- You sell fear on both ends – betting that the market won’t move much.
- If it stays in the middle, you keep the full premium.
- If it breaks either side, losses start to grow fast.
Why Use It?
- Time decay (theta) is on your side
- Works well in sideways markets
- Great for experienced traders comfortable with undefined risk
- Simple to deploy and monitor
When Should You Use a Short Strangle?
- You expect low volatility
- You want to generate income
- You believe the market will stay within a range
- IV is high, and you're expecting it to drop (volatility crush)
Example: Short Strangle with NIFTY (05 June 2025 Expiry)
Let’s break down a real-world Short Strangle example on OptionX.
Strategy Setup:
- Instrument: NIFTY
- Expiry: 05 June 2025
- Type: Call & Put Options
- View: Neutral to slightly directional
What We Did:
You build this strategy by:
- Selling 1 OTM Put at 24550 PE → ₹102.95
- Selling 1 OTM Call at 24950 CE → ₹138.80
Credit Collected: ₹241.75
Net Premium: ₹-241.75
Why This Strike Selection?
The strikes are selected away from ATM to increase the probability of success:
- Sell 24550 PE: Betting the index will not go down drastically
- Sell 24950 CE: Expecting limited upside movement
- IVs are around 16%: Decent for initiating premium-based trades
Why These Numbers Matter
Max Profit: ₹18,131.25 — only if NIFTY stays between 24550 and 24950 till expiry
Max Loss: Unlimited — if NIFTY moves beyond either strike significantly
Breakeven Range: 24308.25 to 25191.75 — stay inside to earn
Risk/Reward: Not defined (since losses can be unlimited)
Funds Needed: ₹219,981.97 — higher margin due to naked selling
POP (Probability of Profit): 53% — a favorable chance of profit if market stays sideways
How to Place Short Strangle on OptionX
Step 1: Head to Strategy Builder
Log in to OptionX dashboard → Open “Strategy Builder”
Step 2: Select strategy
Step 3: Save the strategy and Open ladder
Step 4: Execute Strategy - click on bid or offer column to buy or sell
