OPTIONS STRATEGIES·SHORT VOL·2 LEGS

Short strangle

Sell an OTM call and an OTM put. Wider profit range than a short straddle but less premium collected. Unlimited risk on the call side.

INPUTS

Underlying price

Centers the payoff chart and computes P&L at this price.

LEGS

Short OTM put

Type

Side

Strike

Qty

Premium

Short OTM call

Type

Side

Strike

Qty

Premium

RESULT

$60.002 strikes$140.00

P&L at current spot (expiry)

+$240

Net credit+$240

Max profit+$240

Max lossUnlimited

Breakevens$92.60 · $107.40

RISK PROFILE

Max profit

Total premium received

Max loss

Unlimited

Breakeven

Put strike − credit/share, Call strike + credit/share

HOW IT WORKS

How a short strangle works

A short strangle sells an out-of-the-money call and an out-of-the-money put in the same expiry, collecting both premiums. It profits if the stock finishes anywhere between the two short strikes. Compared with a short straddle it collects less credit but has a much wider profit zone.

The risk is undefined on the call side and very large on the put side, exactly as with a short straddle. The wider strikes make the position feel safer — and statistically it does win more often — but the losing outcomes are the same shape, and they arrive precisely when the market moves most violently.

It is a short-volatility position in the purest sense. It makes money from time passing and from implied volatility falling, and it loses from movement in either direction. An iron condor is this same trade with long wings added to cap both tails.

WORKED EXAMPLE

A worked example

XYZ trades at $100 and you expect it to stay range-bound. You sell the $105 call for $1.50 and the $95 put for $1.50, both expiring in 30 days.

Total credit

($1.50 + $1.50) × 100 = $300 (max profit)

Breakevens

$108.00 and $92.00

At expiry, XYZ between $95 and $105

Both expire worthless, keep $300

At expiry, XYZ = $120

Call assigned: −$1,500 + $300 = −$1,200

At expiry, XYZ = $75

Put assigned: −$2,000 + $300 = −$1,700

A 10-point profit window that wins most months, against losses with no upper bound. The comfort of the win rate is the trap — this profile looks excellent right up until the month it does not.

FIT

When a short strangle fits — and when it doesn't

Consider it when

You expect range-bound price action and elevated implied volatility that you expect to contract.
You have the margin and permissions for undefined risk, and size accordingly.
No scheduled catalyst falls inside the expiry.

Think twice when

Almost always, if an iron condor would do. The wings cost part of the credit and remove both tails.
The underlying is trending. Selling both sides of a trend guarantees one side is wrong.
Implied volatility is already low, leaving a thin credit against an unchanged tail.

FAQ

Common questions

What is the maximum loss on a short strangle?

Undefined. The short call has no upper bound and the short put runs down to the strike minus the credit. This is why brokers require substantial margin and higher approval levels.

How is it different from an iron condor?

An iron condor is a short strangle with protective long options bought further out on both sides. It collects less credit in exchange for a fixed, known maximum loss.

Where are the breakevens?

Call strike + total credit, and put strike − total credit. Short $105/$95 strikes with a $3.00 credit break even at $108.00 and $92.00.

Does a high win rate make this a good strategy?

Not on its own. The position is designed to win often and lose large, so the win rate is expected to be high. What determines the outcome over time is whether position size can absorb the losses when they come.

RELATED STRATEGIES

Short straddle

Short volatility · Profits if stock pins the strike.

Iron condor

Neutral · Defined-risk credit, profits when stock stays in range.

Long strangle

Long volatility · Cheaper than a straddle, needs a bigger move.

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