Short Strangle Strategy
Sell both an OTM put and OTM call to collect premium in range-bound markets.
Premium received from both options
Unlimited (stock can go to infinity or zero)
Put strike - total premium AND Call strike + total premium
neutral
📖 What is the Short Strangle?
A short strangle involves selling an out-of-the-money put and an out-of-the-money call with the same expiration. You collect premium on both sides and profit if the stock stays between the two strikes. It offers higher premium than an iron condor but with undefined risk.
🔧 How to Set Up
SELL PUT @ OTM (below current price)
Sell OTM put
SELL CALL @ OTM (above current price)
Sell OTM call
💡 Example Trade
Underlying: QQQ @ $400
Sell 380 put and 420 call for $6 total credit
$600 (total premium × 100)
Unlimited
$374 and $426
📊 Greeks Profile
Near zero initially.
Negative. Large moves hurt.
Positive. Time decay benefits you.
Negative. Falling IV helps.
❓ Frequently Asked Questions
How do I manage a short strangle gone wrong?
Options include rolling the tested side out in time, converting to an iron condor by adding long wings, or closing the position to cut losses. Have a max loss threshold defined before entry.
Pros & Cons
- ✓Higher premium than defined-risk alternatives
- ✓Wide profit range
- ✓Benefits from time decay and IV contraction
- ✓Flexibility to roll and adjust
- ✗Unlimited risk on both sides
- ✗Requires significant margin
- ✗Can have large losses in volatile markets
- ✗Stressful to manage during large moves
Ideal Conditions
- →High IV environment
- →Expecting low volatility and range-bound action
- →Comfortable with undefined risk
- →Have sufficient margin/buying power
💡 Pro Tips
- Use on underlyings you're comfortable owning or shorting
- Have a plan for defending both sides
- Use with high IV rank (>50%)
- Consider defined-risk alternatives if new to selling premium