What is a Strangle Options Strategy?

In a strangle options strategy, a trader may buy or sell an out-of-the-money call (OTM) and an out-of-the-money put with the same expiry. As per general market understanding, there are two primary forms of the strangle options strategy:

A) Long Strangle

A trader:

• Buys an OTM call
• Buys an OTM put

The long strangle options strategy generally benefits from a large price movement in either direction. The trader expects the movement to be large enough to offset the premiums paid for both options.

B) Short Strangle

A trader:

• Sells an OTM call
• Sells an OTM put

The short strangle options strategy generally benefits when the underlying remains within a defined range and the options expire with limited or no intrinsic value. 

However, a short strangle carries substantial risk if the underlying makes a large move in either direction. Also, the short call can have theoretically “unlimited loss”, while the short put can incur substantial loss if the underlying falls significantly.

How to Execute a Short Strangle on NIFTY Weekly Expiry?

A short strangle on NIFTY weekly expiry involves selling an OTM NIFTY call and an OTM NIFTY put with the same weekly expiry. For example, with NIFTY at 25,000, a trader might sell:

• 25,300 Call
• 24,700 Put

The position receives premiums from both options. If NIFTY remains within the relevant range at expiry, both options may expire with limited intrinsic value. However, a substantial move beyond either strike can produce significant losses.

Analyse Options Strategies With Real-Time Market Data

A strangle involves an OTM call and an OTM put with the same expiry. Trade246 gives you access to real-time market prices. Use them to monitor the underlying and analyse price movements around different strike levels.

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