Short Strangle

What is Short Strangle ?

The Short Strangle can be created by selling an OTM Call and an OTM Put Options.

It should be the same stock/index & expiry date.

When can it be created ?

This strategy can be initiated when we expect that the underlying stock/index volatility will be very less.

Profit / Loss

Profit is limited which is only the premium received. 

Loss is unlimited when the stock / index experiences notable up or down movement.

Steps to create

1. Sell 1 OTM Call

2. Sell 1 OTM Put

Break-even 

Upper Break-even = Strike Price of Call+ Premium Received

Lower Break-even = Strike Price of Put - Premium Received

Example:

Suppose Nifty is currently at 10,380. You are predicting market movement will be very less

and it wont be more than 600 points. 

In that scenario, based on your risk appetite you can create the below short strangle,

1. Sell 1 OTM Call --> 10400 + 500 -> 10900 Call

2. Sell 1 OTM Put  --> 10400 - 500 -> 9900 Put
3. Total premium receivable - 99.95, 175.35
4. Breakeven - 9625, 11175

Pay-off Chart:

1. Important points to consider before initiating this strategy
2. Detailed explanation of the above with payoff chart
3. Creating it step by step with nifty

All the above is explained in our YouTube channel.

Video link (Tamil) - https://youtu.be/nI1g-FCg3O8