Definition
Short Strangle
A short strangle sells an out-of-the-money call and an out-of-the-money put to earn premium in a quiet market.
You sell a call above the spot and a put below it, pocketing both premiums. The position profits if the underlying stays inside the two strikes through expiry, giving a wider safe zone than a short straddle, though it collects less premium.
Short strangles are a staple of Indian weekly option selling on Nifty and Bank Nifty because the wide range and fast theta decay suit range-bound markets. The catch is open-ended risk on both wings — a sharp trend or gap can blow through a strike. Many traders convert them into an iron condor by buying protective wings to cap that risk.
Related terms
- Short StraddleA short straddle sells a call and a put at the same strike to profit when the underlying stays calm and range-bound.
- Long StrangleA long strangle buys an out-of-the-money call and an out-of-the-money put to profit from a large move at lower cost.
- Iron CondorAn iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.