Using the Short Strangle Strategy
- Rohit More
- Jun 16
- 5 min read
A Strategy That Works Well in Volatile Situations
Many experienced traders are paying attention to the short strangle strategy in the world of options trading, since it combines accuracy with risk management. This way of investing relies on time decay and not predicting market directions to help you earn returns, especially when the market is not moving much.
What exactly is meant by the short strangle option strategy? How can you carry out this task in the best way? What are the possible dangers and benefits of this investment? What are the top stocks that are best for the short strangle strategy in the current Indian market?
Let’s go through the different parts that make this strategy so powerful.
What does Short Strangle Strategy mean?
To use a short strangle, you sell both a call and a put option on the same underlying, but set their strike prices above and below the current market price, both options expiring at the same time.
With this strategy, the trader doesn’t predict the direction of the stock but instead hopes it stays between a set range.
Here is how the structure of the process appears:
Sell one Out-of-the-Money (OTM) Call Option
Sell one Out-of-the-Money (OTM) Put Option
They have the same expiry date.
The trader collects premium from each of the options. If the stock does not go above or below the two strike prices till expiry, both options become worthless, and the trader gets to keep the combined premium.
What Benefits Come from Using the Short Strangle Option Strategy?
This strategy is most often applied when:
You anticipate that the stock or index will stay within a narrow range.
The current implied volatility is high and is set to decline.
You are looking to gain from time decay (Theta).
Unlike other strategies that depend on price changes, the short strangle does well when the market doesn’t move much.
An Example of Using Selling Strangles in Options
Let’s say, Reliance Industries is trading at ₹2,500.
You feel that the stock will stay between ₹200 range for the next two weeks.
So you:
Sell a ₹2,400 Put Option for a price of ₹25
Sell a ₹2,600 Call Option for a price of ₹30.
The total amount collected as premium is ₹55.
Reliance should stay in the range of ₹2,400 to ₹2,600 until expiry, both options will expire worthless and you will keep the full amount of ₹55 per lot.
But if Reliance’s price is higher or lower than the strike price, you will begin to lose money. Because the potential gains are infinite on the call side, it is very important to manage your risks well.
Advantages of the Short Strangle Option
With Double Premium Collection, you get paid premium from both the call and put sides.
As time goes by, options lose their value, making it advantageous for the seller.
Non-Directional Bias is best for traders who believe the market will be calm.
It is easy to change the strategy by using spreads or rollovers.
What Are the Risks When Selling Strangles in Options
A lot of money can be lost if the market moves in favor of the calls.
You need to have a lot of margin and capital to sell options.
Losses can quickly increase if the underlying price makes a sudden move just before the contract expires.
So, traders often add long far OTM options to short strangles to change them into iron condors or protected strangles.
Best Stocks for Short Strangle Strategy in India
How you choose stocks for short strangle strategy is determined by:
High open interest in options suggests there is a lot of liquidity.
A steady change in prices
Predictable behavior
How to Choose Strike Prices for Short Strangle?
Picking the best strike prices is a skill that uses math. An important guideline:
Choose strike prices that have a delta of 15–20 for both call and put.
Make sure the premiums collected are more than 1.5% of the spot price.
Set your break-even points so that you can handle sudden changes in the market.
You could also use spots like support/resistance zones, ranges based on ATR, or volatility from the past to set your short strangle range.
What are the Times When You Should Not Use the Short Strangle Options Strategy?
When important news comes out, such as earnings, budgets, and RBI announcements
When IV is low and the premiums are not high enough
When the markets are experiencing a strong trend, up or down
Strangles benefit from volatility crush after a news event, but not from volatility expansion when events are uncertain.
Short Strangle vs Long Straddle: A Common Confusion
Strangles and straddles are often confused by people who are just starting out. Even though they both use two legs, they have different characteristics.
Feature | Short Strangle | Long Strangle |
Directional Bias | Neutral (rangebound) | Volatile (big moves expected) |
Structure | Sell OTM call + put | Buy ATM call + put |
Risk Profile | Limited profit, unlimited loss | Unlimited profit, limited loss |
Ideal Conclusion | Low volatility | High volatility |
Important Greeks in Short Strangle Strategy
It is important to understand Option Greeks.
Theta: Decay over time is beneficial to you. The closer the date of expiry, the quicker the item will decay.
At first, Delta is not affected by market movements, but it may turn directional as the price changes.
Vega: A decrease in market volatility helps the strategy. An increase in IV is not good.
As the option expires soon, gamma risk goes up, so that even minor changes in the underlying price can cause major changes in delta.
Hedging a Short Strangle
Since there is unlimited risk in selling strangles in options, many traders decide to hedge them.
You can reduce your losses by buying far OTM call and put options and turning it into an iron condor.
For both legs, use stop-loss orders that are calculated using delta or premium.
Pay special attention to Greeks, especially Vega and Gamma, in the days before the options expire.
Short strangles with risk management help ensure that your profit and loss stays consistent from month to month.
An Example of Using Nifty Short Strangle
For example, Nifty is currently at 25,000.
You sell:
24,500 will be put at ₹40
25,500 Call for ₹35
The amount of the total premium is ₹75.
You will break even when your sales are at 24,425 or 25,575.
Nifty should settle between these levels, you receive ₹75 for every lot, which is ₹5,625 in this case. Still, if Nifty rises to 25,800, your call option incurs losses, but you gain some money from the put premium.
This strategy is usually applied during quiet expiry weeks or after the budget, since no new triggers are expected then.
If used properly, the short strangle strategy can provide regular income and a high chance of making money. A lot of professional traders and institutions use it to benefit from theta and volatility decreasing in markets that do not move much.
Still, this field is not for people who are easily scared. Being prepared is important for you to:
Watch your trades on a regular basis.
Adjust the way you are positioned as you move.
Hedging or using stop losses can help you handle risks.
If you are a beginner, using this strategy on paper or with Nifty or Bank Nifty is a good idea before you try it with individual stocks.
Keep yourself informed, stay focused, and don’t forget that consistency is the most important thing in options.
