trade talk

Option Strategy : Short Strangle
Derivatives - Options

Hi Friends,

I hope you are doing great. Last week we discussed one of my favourite strategies Long Strangle. Our strategy is more or less similar but totally opposite to Long Strangle. Today’s strategy is Short Strangle. It can also be a blessing if you can execute it properly. So without waiting any further let’s discuss the Strategy.

Short Strangle

This strategy involves the selling of a slightly out-of-the-money (OTM) Put and a slightly out-of-the-money (OTM) Call of the same underlying stock / index and expiration date at the same time.

In this strategy, since OTM call and put are sold, the breakeven points are also widened. The underlying stock has to move significantly for the Call and the Put to be worth exercising. If the underlying stock does not show much of a movement, the seller of the Strangle gets to keep the Premium.

When can we use this strategy??

We can use this strategy when we believe that the underlying stock / index will experience very little volatility in near future.

Risk involved while using this strategy


Benefits of using the strategy

Limited Profits

When do we achieve the breakeven?

  • Upper Breakeven Point = Strike Price of Short Call + Net Premium Paid
  • Lower Breakeven Point = Strike Price of Short Put – Net Premium Paid


Let’s assume currently Nifty is trading at 8200

We sell Rs 8000 Put for Rs. 20 and a Rs. 8400 Call for Rs. 30

Net credit taken to enter the strategy is Rs. 50, which is the maximum gain we can get.

Now let’s understand how we this strategy will shape up:

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Pratyush is a Post Graduate in Marketing Management and has a leadership experience of nearly a decade in diversified industry including Stock Broking. Having headed companies for over half a decade, Pratyush brings with him, rich Marketing and....

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