Stock Market · Option Strategies

Short strangle

A short strangle is the premium seller's favourite: sell an OTM call and OTM put, collecting credit on both sides, and profit if the market stays between the two strikes.

Construction

Example: Nifty at 22,000.

• Sell 22,300 call @ ₹130
• Sell 21,700 put @ ₹120
• Total credit: ₹250

Payoff

• Maximum profit: ₹250 × 75 = ₹18,750 (if Nifty stays between 21,700 and 22,300)
• Breakeven above: 22,550
• Breakeven below: 21,450
• Loss: unlimited beyond breakevens

> The short strangle has wider breakevens than a short straddle. It tolerates more movement, but premium collected is also lower.

Why it's popular

Nifty tends to stay within a 1-2% weekly range in calm markets. Selling a strangle 1.5% OTM on both sides means you profit even with moderate moves. This is the core logic behind premium selling.

The fatal mistake

Treating the collected premium as 'almost guaranteed.' One event, earnings surprise, geopolitical shock, RBI rate cut shock, can blow through both breakevens and cause losses 5-10x the collected premium.

Always have a stop loss: e.g., close the position if the mark-to-market loss exceeds 2x the premium collected.

Short strangleshort straddle with more breathing room, less premium

Takeaway. Short strangle sells OTM call and put, profiting from non-movement in a wider range. More room than a straddle, but still has unlimited loss potential. Always have a stop loss plan.