Short Strangle (Sell Strangle)
A range-based income strategy: sell OTM call and OTM put. High risk in big moves; margin intensive.
Warning
Short strangles can suffer large losses in fast markets. Use strict risk limits and consider defined-risk alternatives.
Key management idea
Risk comes from tails. Many traders manage by adjusting strikes, reducing size, or exiting before events.
Practical deep‑dive
Info
Profile
Best suited when volatility and time-to-expiry are the main drivers (range or breakout views).
Strategy snapshot (quick)
| Field | Value |
|---|---|
| Style | volatility |
| Cost type | Usually a premium/volatility expression; timing and IV matter heavily. |
| Best when | You expect a big move or volatility change (direction may be uncertain). |
| Watch out | If the move doesn’t happen, theta + IV crush can be painful. |
Greeks to watch
Focus on these exposures first
| Greek | Why it matters |
|---|---|
| Vega | Volatility exposure is central |
| Theta | Time decay can be significant |
| Gamma | Near expiry, payoff sensitivity can increase |
Professional options traders focus on “structure first”: define risk, choose strikes/liquidity, and write down exit rules before entry. Most losses come from oversized positions and holding short-dated options without a plan.
Execution checklist
Use this before placing the trade
| Check | Why it matters | Quick test |
|---|---|---|
| Liquidity | Spreads can eat edge | Tight bid‑ask + decent volume/OI |
| Risk defined | Prevents blow-ups | Max loss is known and acceptable |
| Time horizon | Avoid time mismatch | Expiry matches your view timeframe |
| Volatility regime | Premium cost changes outcomes | IV not extreme vs recent range |
| Exit plan | Stops emotional decisions | Target/stop/time exit written down |
Mistakes to avoid
- Trading illiquid strikes (wide spreads) because premium looks “cheap”.
- Using market orders during fast moves and getting poor fills.
- Adding to losing positions without a predefined rule.
- Ignoring event risk (results, policy events) near expiry.
- Overusing weekly expiries before mastering risk control.
Summary (takeaways)
- Prefer defined-risk structures while learning.
- Liquidity and execution quality matter as much as strategy selection.
- Consistency comes from process, not predictions.