Short Strangle
Sell an OTM call and an OTM put at different strike prices. Similar to the short straddle but with a wider profit range and lower premium collected. Still an undefined-risk strategy.
Payoff Diagram
How to Set Up This Trade
Sell one OTM call and one OTM put, each at different strike prices, same expiration.
Trade Setup — 2 Legs
When to Use This Strategy
You expect the stock to stay within a range. Implied volatility is elevated and expected to contract. You want a wider profit zone than a straddle.
Tips from the Pros
- 1
Choose deltas of 0.15-0.30 on each side for a good probability of profit.
- 2
Manage early — close at 50% of max profit to reduce tail risk.
- 3
This is undefined risk: never sell strangles without understanding assignment risk and having a plan.
Quick Reference
Max Profit
Limited to the total premium received from both options.
Max Loss
Unlimited on the upside (short call) and substantial on the downside (short put, stock can go to zero).
Breakeven
Upper breakeven: short call strike + total premium. Lower breakeven: short put strike - total premium.
Best IV Environment
High IV
Time Decay (Theta)
Helps (positive theta)
Risk Level
High RiskLearn More
Our courses cover this strategy with real trade examples and live market analysis.
Browse CoursesRelated Neutral Strategies
Other strategies for a neutral market outlook.
Iron Condor
Sell an out-of-the-money call spread and an out-of-the-money put spread simultaneously. You profit if the stock stays within a range. This is one of the most popular income-generating strategies.
Iron Butterfly
Sell an ATM call and an ATM put at the same strike, then buy an OTM call and OTM put for protection. Similar to an iron condor but with the short strikes at the same price, producing more premium and a narrower profit zone.
Short Straddle
Sell an ATM call and an ATM put at the same strike price and expiration. You collect maximum premium and profit if the stock stays near the strike. This is a high-premium, high-risk strategy.