Short Strangle

An out-of-the-money put and an out-of-the-money call sold in the same expiration: a wider range than a short straddle in exchange for a smaller credit.

Also called Sold strangle, Naked strangle

Outlook

Neutral

Family

Directional

Level

Expert

Legs

2 legs

Expirations

1 expiration

Opens for

Credit

Maximum profit

Limited

Maximum loss

Unlimited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
A	Short	Put 92.5	1	Delta 16
B	Short	Call 107.5	1	Delta 16

What it is

A put sold at A below the price and a call sold at B above it, both in the same expiration and both out of the money.

It is a short straddle with the strikes pulled apart: a range of prices where the full credit is kept instead of a single point, paid for with a smaller credit. The loss outside that range is still unbounded.

The payoff

At expiration

A flat-topped shape between the two strikes: the full credit is kept anywhere between A and B, and the position loses outside them.

A plateau rather than a peak:

• Between A and B — both expire worthless and the full credit is kept, anywhere in the range.
• Below A or above B — one leg is in the money and loses with the move, with no bound on the upside.

Break-evens are A minus the credit and B plus the credit, wider than the strikes themselves.

How it behaves before expiration

Today, before expiration

Today's value is a shallow curve below the plateau, rounded at both corners rather than flat between the strikes.

The plateau is a gentle mound before expiry. The credit is realised gradually, fastest in the final weeks, and only in full if the underlying is still between the strikes at the end.

The structure is less responsive day to day than a short straddle, in both directions: further from the money means less gamma and less theta.

The Greeks

Delta is near zero in the middle of the range and turns against the position as either strike is approached.

Gamma is negative, lower than a short straddle’s and spread across two strikes.

Theta is positive, smaller per day than a short straddle’s, and collected over a wider range of outcomes.

Vega is negative. Out-of-the-money strikes are where a change in implied volatility often shows most in percentage terms, so this position’s vega is larger than the small premiums might suggest.

Where it lives in the volatility environment

Practitioners describe the short strangle in terms of the range the credit pays for, and generally observe that both the credit and the risk of the range being broken rise with implied volatility. The structure’s defining property is unchanged by the environment: the loss outside the strikes is not bounded.

What can go wrong

• The loss is unbounded on the upside, exactly as with a short straddle. A wider range does not make it defined.
• One side moves and the other does not help. The untested leg’s remaining credit is small comfort against a tested one.
• Early assignment on either wing leaves a share position and a lone option.
• Margin rises with the move, and the requirement for an undefined-risk structure can grow faster than the loss itself.
• Both legs still have to be closed. Buying back only the tested wing leaves a naked option on the other side.

Building it in Option Panel

Open Build Strategy and pick Short Strangle. The two strikes are selected independently — by delta, by percentage or points from the price, by offset, or exactly. Equal deltas on the two wings is the usual symmetric starting point.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Iron Condor — this structure with both wings bought back, which turns the unbounded loss into a defined one.
• Short Straddle — the same idea at one strike: a larger credit for a narrower range.
• Long Strangle — the other side.