Short strangle
Sell an out-of-the-money call and an out-of-the-money put. You keep the premiums if the index stays between the strikes; the loss outside them is not capped.
How it is built
- Sell 1 lot of an out-of-the-money call.
- Sell 1 lot of an out-of-the-money put, same expiry.
A structure for a view that the index will stay within a range. Losses outside the range are uncapped.
Risks
- Unlimited loss above the call strike and large losses below the put strike.
- Wins tend to be small and frequent; a single gap move can erase many of them.
- High margin that rises with volatility and on expiry day.
- Selling options needs margin set by the exchange (SPAN plus exposure margin), usually far more than the premium received.
How the Greeks behave
- Delta
- Close to zero at the start
- Theta
- Positive
- Vega
- Negative
Worked example on Nifty 50
| Leg | Premium per unit | Cash flow |
|---|---|---|
| Sell 1 lot 25,500 CE | ₹44.20 | +₹2,873 |
| Sell 1 lot 24,500 PE | ₹32.49 | +₹2,112 |
Profit and loss at expiry
For the whole position, before charges.
Premiums are theoretical Black–Scholes values from round, illustrative inputs, not market prices. Charges and margin are not included.Price a single leg with your own numbers.
Short strangle on other indices
Frequently asked questions
What is the maximum profit on a short strangle?
The combined premium received, if the index ends between the two strikes.
What is the difference between a short strangle and an iron condor?
An iron condor adds bought options beyond each strike, which caps the loss and lowers the margin, at the cost of a smaller premium.
Why do many option sellers lose money?
The premium is small compared with what a large move can cost. SEBI's studies show most individual F&O traders make net losses.