Short Strangle (Sell Strangle) Option Trading Strategy Explained

📌 Table of Contents

• Overview
• What is a Short Strangle?
• How Does the Short Strangle Work?
• Breakeven Points
• Live Examples
• How to Exit a Short Strangle?
• Payoff Graph
• Pros and Cons
• FAQs
• Final Thoughts

📌 Overview

The Short Strangle, also known as the Sell Strangle, is an advanced neutral options trading strategy. Traders use it when they expect the underlying asset to stay within a specific range until expiration. It involves selling an Out-of-the-Money (OTM) Call and an OTM Put option with the same expiry date and underlying asset.

📖 What is a Short Strangle?

A Short Strangle is a non-directional options strategy. The trader profits if the price of the underlying remains between the two strike prices (the sold call and sold put) until expiration.

🛠️ Strategy Setup

• Sell 1 OTM Call Option
• Sell 1 OTM Put Option
• Same underlying asset and expiry
• Net credit (premium received)

This strategy benefits from time decay (theta) and low volatility.

⚙️ How Does the Short Strangle Work?

• You receive a premium upfront
• The maximum profit is limited to the total premium received
• The risk is unlimited if the underlying moves significantly in either direction

✅ Ideal Market Conditions

• Low volatility
• Neutral to range-bound view
• Stable price movement

🧮 Breakeven Points

• Upper Breakeven = Call Strike + Total Premium Received
• Lower Breakeven = Put Strike – Total Premium Received

📊 Live Examples (As of August 8, 2025)

Note: Prices and premiums are approximate. Always check real-time data before trading.

1️⃣ BANKNIFTY Short Strangle

• Spot Price: ₹48,500
• Sell 49,500 CE @ ₹110
• Sell 47,500 PE @ ₹95
• Net Premium Received = ₹205
• Breakevens: 49,705 (Upper), 47,295 (Lower)
• Profit range: Between ₹47,295 and ₹49,705

📊 BANKNIFTY Short Strangle Payoff

📈 The red line shows the P/L curve, blue and green dashed lines indicate strike prices.

2️⃣ NIFTY Short Strangle

• Spot Price: ₹22,000
• Sell 22,700 CE @ ₹75
• Sell 21,300 PE @ ₹70
• Net Premium Received = ₹145
• Breakevens: 22,845 (Upper), 21,155 (Lower)
• Profit range: Between ₹21,155 and ₹22,845

📊 NIFTY Short Strangle Payoff

3️⃣ RELIANCE Short Strangle

• Spot Price: ₹2,950
• Sell 3,100 CE @ ₹20
• Sell 2,800 PE @ ₹18
• Net Premium Received = ₹38
• Breakevens: ₹3,138 (Upper), ₹2,762 (Lower)
• Profit range: Between ₹2,762 and ₹3,138

📊 RELIANCE Short Strangle Payoff

🔚 How to Exit a Short Strangle?

1. Exit at Target Profit: Close both positions when most of the premium is captured (e.g., 70%-80%).
2. Exit Before Expiry: Exit the trade 1–2 days before expiry to avoid sudden volatility.
3. Exit with Stop Loss: Set a combined loss stop (e.g., 1.5x of net premium received) or delta-based adjustments.

📈 Payoff Graph of Short Strangle

       |
       |               ___________
       |              /           \
Profit |-------------|             |-------------
       |             |             |
       |             |             |
       |_____________|_____________|____________
                    ↓             ↓
                Lower B/E     Upper B/E
	
	

Flat profit zone between breakevens. Unlimited loss if the price moves beyond either side.

✅ Pros and ❌ Cons of Short Strangle

✅ Pros:

• Earns premium upfront
• Works well in sideways markets
• Theta (time decay) works in your favor
• Can be adjusted with delta-neutral strategies

❌ Cons:

• Unlimited risk on both sides
• Not ideal in high volatility situations
• Requires strict risk management
• Sudden news events can cause sharp moves

🔍 FAQs

Q1. Is Short Strangle profitable?
Yes, it can be profitable in range-bound or low-volatility markets due to premium decay.

Q2. What is the difference between Short Strangle and Short Straddle?
Short Straddle sells ATM Call and Put. Short Strangle sells OTM Call and Put—wider range but lower premium.

Q3. Can I adjust a Short Strangle if the market moves?
Yes. You can roll options, convert to an Iron Condor, or hedge with Futures.

📚 Final Thoughts

The Short Strangle strategy is a powerful tool for experienced options traders who are confident that the market will stay within a defined range. However, due to unlimited risk, it must be traded with caution, proper capital, and strict exit rules.