A Short Strangle involves selling a call option and a put option at different strike prices but the same expiry. It profits from minimal price movement within the range.
- Ideal for low-volatility conditions, where the price is expected to stay range-bound.
- Selling OTM options balances premium income and risk.
- Risk is significant if the price moves beyond the range of the strike prices.
- Profits are limited to the combined premium received.
Example:
- NIFTY trading at 18,000.
- Sell 18,200 Call at ₹100 and 17,800 Put at ₹90 (lot size = 50).
- Outcome:
- If NIFTY stays between 18,200 and 17,800 at expiry:
- Both options expire worthless.
- Net profit = ₹9,500.
- If NIFTY rises to 18,400 at expiry:
- Call loss = ₹200 × 50 = ₹10,000.
- Put expires worthless.
- Net loss = ₹10,000 − ₹9,500 = ₹500.
- If NIFTY falls to 17,600 at expiry:
- Put loss = ₹200 × 50 = ₹10,000.
- Call expires worthless.
- Net loss = ₹10,000 − ₹9,500 = ₹500.
- If NIFTY stays between 18,200 and 17,800 at expiry: