Short Strangle – Learn with Example

LAST UPDATED MAY 30, 2025

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

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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

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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

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Step 3: Save the strategy and Open ladder

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Step 4: Execute Strategy - click on bid or offer column to buy or sell

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